Why Most Strategies Fail: Reason #2

BACKGROUND

I recently saw a blog by the Cascade strategy software company entitled “The 5 Reasons Why 70% of Strategies Fail.” You can read it here.

Since I disagree with their conclusions, I decided to write my own blogs on why strategies fail. I came up with three major reasons. The first reason why most strategies fail is because they are too internally focused at the expense of an external orientation. I covered that topic in the first blog.

The second major reason why strategies fail is because they focus too much on “doing” rather than “being.” That is the topic of this blog.

PROBLEM #2: STRATEGIC FOCUS ON DOING RATHER THAN BEING
In an earlier blog I started by looking at children. Children don’t talk about what they want to “do” when they grow up. No, they talk about what they want to “be” when they grow up. Strategists need to imitate children by asking what their companies want to be in the future rather than what they want to do in the future.

“Being” Keeps You Relevant

Why is a focus on “being” so important? One reason is because the world is full of change. Technology changes, competition changes, social norms change, and so the list goes on in so many areas. The cumulative impact of all of this change causes behaviors and actions which used to be right and normal to appear quaint and obsolete.

Just think of all the change resulting from the internet or the smart phone. They have turned many conventional behaviors on their head. The right behaviors before the internet and the cell phone now look so add and out of place. This is one reason why many millennials cannot tolerate watching old movies and TV shows. The activities in these old shows seem so wrong or odd from the millennials’ modern perspective that they cannot relate to them.

This is why a strategic focus on “doing” can lead to failure. If you do the “right thing” for a long enough period of time, the changing world will eventually make it the “wrong thing.” Your strategy becomes obsolete and you fail.

Just look at Kodak. It didn’t matter that Kodak perfected the way to do analog film. Digital imaging made that type of doing obsolete. A strategy that finds the best way to do something is worthless when customers no longer want you to do it.

That is why focusing on “being” is so much better than a focus on “doing.” “Being” transcends a changing environment. For example, if instead of focusing on “doing” film, Kodak had focused on “being” the best solution for capturing memories, it could still be a thriving company today.

There is always a need to capture memories. The best solution may vary over time, but a solution will always be needed. If you focus on the big picture of what you want to stand for in the marketplace (your choice of what to be), you will remain relevant. By contrast, if you focus on what you want to do, you will become irrelevant.

Example: Wal-Mart

Over the decades, Wal-Mart had had a relentless focus on what it wanted to be. It’s founder, Sam Walton, wanted the company to be the best at offering retail value, starting first in rural communities.  Back in the 1950s the best way to “do” that was with variety stores. So Sam Walton operated Walton’s variety stores.

By the late 1950’s Walton could see that discount stores were becoming a superior solution for being the best at offering retail value, so he abandoned doing variety stores and began to do Wal-Mart discount stores.

In the early 1980’s it looked like warehouse clubs could be an even better way to be the best value provider, so in 1983 the first Sam’s Club was opened. By the late 1980’s Walton could see that supercenters had the potential to be a better value than either discount stores or warehouse clubs, so he stopped doing discount stores and started doing supercenters.

Now, shopping by smart phone appears to consumers as the best value, so Wal-Mart is pushing very hard to become a major player in that space.

Through it all, Wal-Mart has changed many of the ways they have done things. But it has stayed true to what it wanted to be: the best value in retail. By focusing on the being rather than the doing, it has survived around seven decades, whereas most of its competitors (who focused on doing) during that time have disappeared.

“Being” Increases Preference

Nearly every wildly successful brand creates a meaning and purpose which transcends the current product offering. It is this added purpose which causes customers to want to identify with the brand. 

As we talked about in the prior blog, successful strategies create natural preference without resorting to bribes. When your company becomes something grander that customers want to be identified with, they will prefer your brand and pay a premium to do so.

Think of Nike. It does not make shoes. Others own the factories and do the work.  Nike focused instead on being the embodiment of what is aspirational in athleticism. Anyone wanting to identify with that aspiration became attracted to Nike and was loyal to them.  That strategy allowed Nike to successfully expand into many athletic areas beyond shoes while charging premium prices.

BMW’s success is not due so much to “doing” automobiles as to “being” the purveyor of “the ultimate driving machine.” Everything BMW does is focused on this higher level of being. Those desiring to be associated with that type of being flock to BMW and pay a premium for the privilege.

Apple’s success has far more to do with the being it represents than the products it offers. It became the essence of coolness and hipness. Those who also wanted to be seen as cool and hip flocked to Apple.

This is not just a consumer products thing. Back in the days of the big mainframe computers, IBM won the day. It was not just because IBM was good at doing mainframe computers. It was that they created this aura of professionalism and service which transcended the product. It impacted everything all the way down to the professional-looking dress code of the service technicians who came to the customer’s building for repairs.

IBM executed becoming this sense of being professional and reliable so well that there was a saying back in those days that “nobody ever lost their job recommending IBM” for their company. It was the brand IT professionals wanted to be identified with.

Being Needs to Influence Everything

As IBM and other successful brand show, strategy focused on being is a lot more than just a clever slogan or public relations. It has to become a consistent way of life for the entire organization. The corporate culture has to have a similar sense of being. Every facet of the business has to reflect that sense of being, from product design to customer service to how the brand interacts with society.

Steve Jobs made sure everything in every area of what Apple did lived up to what the brand wanted to be. Similarly, there is no tolerance at BMW anywhere for something that is not driven towards being the ultimate driving machine.

These companies show that success comes not from a completing a list of tasks but from an integrated approach aimed at becoming something with a much higher purpose that permeates the essence how a company sees itself. This goes well beyond just a check list of tasks. It is an exercise in identity management.

Dire Consequences When Strategy is more about Doing than Being

When doing dominates strategy, activities are drawn towards performance metrics rather than how a company is perceived. As long as you do what it takes to meet the performance metric, you are rewarded. Unfortunately “what it takes” can destroy who you are.

For example, Wells Fargo got so focused on the task of doing more multiple account activities that it lost sight of its role to be a financial institution preferred by its customers. The result was that Walls Fargo angered its customers by opening many accounts in the customers’ names without their approval. Now they have a big mess to clean up.

Similarly, Volkswagen got so hung up on doing whatever it took to get good diesel mileage ratings that it resorted to lying and cheating. This severely damaged Volkswagen’s ability to be the type of company customers want to identify with. And now they are paying a steep price (in both money and image).  

Warning Signs that Your Strategy is on a Path to Failure

So, what are the warning signs that one is more focused too much on doing rather than being?

First, how seriously do you take your business mission? Do you even know what you want to be? Does your mission explain a higher reason for being that customers will want to identify with or is it just some clever phrase? Does the company try to live out the mission or is it just meaningless rhetoric?

After the collapse of Enron, I talked to many former employees looking for a job. They all said that Enron had a business mission paper explaining the essence of what Enron wanted to be. It was called RICE and it stood for Respect, Integrity, Communications and Excellence. However, they also said that Enron totally ignored this paper.

Instead, Enron became one thing: a place for doing whatever it takes to increase short-term stock price. The incentives all hinged on doing that one thing. So that is what people did. At the extreme, it became illegal stock manipulation.

This leads to the second warning sign: what do you measure? Wells Fargo, Volkwagen and Enron were measuring an activity (adding cross accounts, increasing fuel economy, raising stock price) rather than measuring how their being was perceived in the marketplace. This destroyed their strategy.

That is why I see KPIs as a necessary evil rather than a salvation for strategy. KPI’s tend to focus on doing, because doing is easier to measure and attribute to an individual. Too many and too much focus on these doing-related KPIs lead to the problems at Enron, Wells Fargo and Volkswagen.

Instead, we need more measurement tools that look at how we are managing our image and sense of being that we want customers to identify with.

The third warning sign is how a company reacts to the changing environment. Does it change with the environment so that its being remains relevant (like Wal-Mart) or does it stick with improving the old process and become obsolete (like Kodak)?

A fourth warning sign is a strategic process where corporate culture is not integral. As the saying goes, “culture eats strategy.” Ignore culture at your own peril.

SUMMARY
Depending on which study you look at, somewhere between 60% and 90% of strategies fail. If we don’t address the deep-seated reasons why strategies fail, we will not be able to raise the percentage of strategic successes. I believe that there are three major reasons why strategies fail and my reasons do not always agree with conventional wisdom. The second reason I believe most strategies fail is because the strategic effort is too focused on doing rather than being. Real success occurs when everything about a company reflects the reason why customers would want to identify their sense of self-worth with the identity of your brand. This requires a strategy that is rooted in knowing what your represent (your sense of being) and what type of culture is needed to personify it. Otherwise, employees will do the activities that boost personal gain and destroy the brand and the strategy behind it.

FINAL THOUGHTS
If you don’t look in the mirror, you won’t know how attractive you are. A key role in strategy is to be the mirror, so that the company can see how attractive it is becoming to its customers

Strategic Planning Analogy #546: It Depends on Company Fit

THE STORY
To earn money during college, I worked on a landscaping crew. We had two types of mowers: large riding mowers and small trimmer mowers that you had to push. The riding mowers were great on large, open, flat lawns. The push mowers were great around trees, fences and other such objects, where the large mowers wouldn’t fit or cut delicately enough.

The old timers on the landscaping crew always took the easy job of sitting on the large mowers. The college students got the tougher job of trimming around the trees with the small mowers. At least I got a tan and built up some muscles.

THE ANALOGY
Are the big riding mowers better for cutting grass or are the small push mowers better? Well, it depends. If you have a large flat lawn, the large riding mowers are better. If you are trying to trim grass around trees, the small push mowers are better. Each mower is appropriate for one type of job and inappropriate for the other type of job. The trick is to choose the appropriate tool for the job you have.

The same can be said of strategy. Some strategies are more likely to be successful in the hands of large companies. Other strategies are more likely to succeed in the hands of small companies. If you put a strategy into the hands of the wrong company, it won’t work.

That’s why you cannot evaluate strategies in isolation. Most of the time one cannot say “This strategy is universally good” or “This strategy is universally bad.” The better answer is “It depends on what company is executing the strategy.” The same strategy may be great or terrible, depending on who is trying to execute it.

So, just as choosing the right tool matters when cutting grass, choosing the right company matters when executing strategy.

THE PRINCIPLE
This is the second of two blogs looking at what makes a strategy good or bad. The first blog looked at how timing impacts success. This blog looks at how the type of company impacts success.

The principle here is that there needs to be a fit between strategy and those being called to execute it. If the fit is good, then the likelihood of success goes way up. If the fit is poor, the likelihood of success goes way down. Therefore, one needs to choose strategies which align best with who they are.

This would seem to be an obvious principle, but I see it violated all the time. A typical case is when a company in an industry does something successful. Others in the industry see that success and try to imitate it. These imitators think “That company has found a good strategy. I should have a good strategy, so I will imitate their strategy.”

However, just because the strategy worked for that first company does not mean it will work for all of the other companies equally as well. It just may not be appropriate for who your business is. It would be as if your company was like the little trimmer mower who was trying to imitate the strategy which worked for the large riding mower. You won’t succeed, because your company isn’t built for success in that area.

There are many elements which influence whether your business is a good fit for a particular strategy. These elements include:

• Culture
• Values
• Competencies & Expertise
• Centralized or Decentralize Management
• Tight or Flexible Controls
• Access to Resources (Money, Talent)
• Connections in the Supply Chain
• Level of Patience on Financial Returns

This list can go on and on. However, to illustrate the principle, I will focus on two elements: Clout and Agility.

Agility

An agile company is a lot like that small trimmer mower. The trimmer mower has the flexibility to cut around all types of obstacles.  It can adjust quickly and make sharp turns when necessary. The same is true of an agile company. It can quickly adjust to lots of obstacles in its path.

Agile companies are well suited to strategies in new spaces where there are a lot of unknowns and where flexibility, speed, and unconventional approaches are keys to success. That is why most of the dramatic disruptions in an industry come from small upstart companies rather than the large status quo firms. The small upstart companies are better suited to having success with the disruption—they are more agile and have less to lose from disruption.

IBM understood this when it tried to invent the PC industry. Management knew that the core of IBM at that time was more like the large riding mower. It was great for mowing down the competition when going after large accounts with large processing needs in established industries. But it was the wrong tool to implement a PC invention strategy. They needed something more agile.

Therefore, in order to make the PC strategy succeed, IBM had to first create a business that was properly fit for the task—something more agile. IBM set up a separate business in a separate location with a culture dis-similar to the rest of IBM. Had they not first set up this separate, more agile culture for the strategy, most experts feel the PC strategy would have been a failure.

Other large companies often try to follow IBM’s example and set up separate, more agile divisions for their start-up strategies. But I’ve seen many of them screw it up by forcing the small division to still use the corporate shared services. The idea is that the shared services will make the start-up more efficient. Instead, I’ve seen the opposite. The start-up is strangulated by all the red tape and bureaucracy from the shared services. They end up becoming less efficient, and worse, less agile. It’s like taking a small trimmer mower and putting a huge engine and seat on it. It can no longer act like a small trimmer mower.

Clout

But small, agile companies are not the best for all strategies. Sometimes clout is more important than agility. As an expert in retail, I’ve been approached by others asking me if a particular retail strategy is good. Sometimes, I respond by saying, “That depends. Is Walmart going to implement the strategy or is it a small upstart?” The reason I say that is because some strategies can only work in the hands of someone with tremendous clout. In the consumer space, Walmart has clout that other can only dream about. So it can implement strategies others cannot.

Since Walmart is typically the largest customer of most consumer products companies, Walmart can ask its vendors to do all sorts of things—and the vendors will do it due to the clout Walmart has with them. Smaller firms would not be able to pull this off.

Walmart’s huge size gives them the scale to do things outside the scope of others. Because they handle so many transactions, Walmart has been able to transform portions of the financial industry. Because they have so many employees, they are now experimenting with reinventing how health care is managed. Size and clout can be your best asset when it comes to some types of strategies, where power is more important than agility.

In an earlier blog, I discussed the story of Clean Shower. Robert Black invented a product that helped clean the soap scum off shower walls. At first, the big consumer product companies wanted to buy him out, but Black initially refused and decided to run his small business on his own.

Unfortunately, his invention was easily copied by big consumer products companies. The consumer product companies used their superior clout in distribution and marketing to get advantageous product placement in the stores and brand preference with the consumers. Black did not have enough clout or resources to keep up with them. Eventually, Clean Shower ceased to exist. For Black, the better strategy would have been to sell out early to the ones who had the clout needed to succeed.

At one time I was trying to pitch a strategy to revitalize Sears. But that was when Sears still had reasonable clout in the marketplace. That clout has since dissipated quite a bit. Sears’ clout has so weakened that I doubt my strategy would work anymore. So was my strategy good or bad? It depends.

Options

Therefore, you have two options when trying to successfully execute a strategy. Either you:

a)      Start by only considering strategies which have a strong fit with what your company is already good at executing, OR

b)      Look for ways to modify your company so that it can become a better fit with the strategy (like what IBM did for the PC).

Although the first option is probably the safest, it may limit you to only small, incremental improvements. If you want to make larger leaps, you may need the second option.

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 who is executing the strategy. If the fit between what the company is good at and what is needed to win is right, the strategy can be very good. If the fit is wrong, that same strategy can be very bad. Although many factors affect fit, two important ones are agility and clout. Sometimes smaller, more agile companies are better suited to a strategy. Other times, large companies with a lot of clout have a better chance of success. To ensure fit, you can either: 1) Only look at strategies which fit who you are today; or 2) Modify your company to improve the fit.

FINAL THOUGHTS
Strategies are only good if they work out in the marketplace. Therefore, before embarking on a new strategy, make sure you know what your company is capable of. Do you have what it takes to make it work out in the marketplace?

Strategic Planning Analogy #520: Whiteout!

THE STORY
I’ve been suffering through this winter like most everyone else here in the United States. A couple of days ago, it was snowing and blowing so bad that we had “whiteout” conditions.

A whiteout occurs when there is so much snow blowing in so many directions that you cannot see anything but a wall of “white.” It’s like being locked in a totally dark room where you can see absolutely nothing—except instead of total blackness, you have total whiteness.

I’ve been caught in whiteouts when driving on expressways. It is extremely dangerous because not only can’t you see the road, you cannot see what the other drivers on the road are doing. You may as well be driving blind.

THE ANALOGY
Businesses can also experience a form of whiteout. Except instead of being blinded by snow, they are blinded by an excessive flurry of data. With unending streams of data flying from all directions with no end in sight, it is easy to get lost.

There are those who say “the more data, the better.” But like snow, too much data can be a dangerous thing. It can overcome businesses and make it impossible to find the way forward. One can become so bogged down in looking down at data that looking up to make forward progress comes to a halt.

THE PRINCIPLE
The principle here is that obtaining data should not be the goal. The real goal is to discover and reach your vision. Data is only useful in this endeavor if two things occur:

1.     It is converted into knowledge:

a.      Insight to help discover the vision;

b.     Insight to deliver the promises of the vision; and

c.      Monitoring knowledge to make sure you are on track.

2.     It does not bog down forward progress towards your strategic destination (paralysis of analysis).

In other words, if all you have is a big pile of data, you have nothing. In fact, it is worse than nothing because of all the wasted time and effort to gather it and stare at it. Instead, what you want is a smaller pile of knowledge.

Knowledge is like a small map you can take in your car telling you where to go. The knowledge map is useful because it distills the vast outdoors into just what you need to motor along. By contrast, data is like all that snow that is still blowing around outside. Instead of giving knowledge of where to go, it prevents you from knowing where to go.

We can learn three things about how people deal with snow to help us understand how to deal with data for strategic purposes.

1. Look at Radar, Not Individual Flakes

If you really want to understand how to deal with snow, you need knowledge. And what knowledge is that? As I’ve stated in previous blogs, strategic knowledge of the environment usually boils down to three things: Magnitude, Direction & Speed. If you know this about a trend, then you typically know what strategic action to take.

For example, household car ownership in the US peaked in 2007. The current direction in the percentage of households owning cars is moving down. If we add to this the best knowledge on the anticipated magnitude of this trend (how low will car ownership go) and the speed (how fast will ownership drop), then we can build an intelligent strategy to deal with this trend.

The same is true of snow. If you know Magnitude (size of the storm), Direction (where it is coming from and where it is going) and Speed (how fast the storm is moving), then you will know how to deal with that snow storm. This is what the TV weathercasters talk about—magnitude, direction and speed—because they know this is the knowledge you need to make the right decisions.

They don’t get this knowledge by looking at individual snowflakes. In fact, they don’t have to really look at any snow at all. Instead, the weathercasters get this knowledge from understanding the big picture. And the big picture comes from looking at radar images rather than snowflakes. Radar captures the entire storm at once and lets you measure magnitude, direction and speed.

Strategists need to do the same. They need to stop obsessing with individual data factoids and look at strategic radar which lets one see the big picture—big enough to show direction, magnitude and speed.

You won’t get the big picture on car ownership by staring at everyone’s driveway one at a time. You need to get broader—and look at something other than cars and driveways. For example, what are the key “driving” forces behind choosing not to own cars. Is it:

1.     Population migration to dense urban centers?

2.     A different attitude towards car ownership among younger adults?

3.     A growing concern for the environment?

4.     A poor economy?

5.     Advances in car sharing options (like Zipcar)?

6.     Less need to travel due to being able to get tasks done at home via the internet?

7.     A combination of the above?

Get the big picture on this (via strategic radar), and you can start to make educated projections on the direction, speed and magnitude of car ownership. Now you have knowledge instead of data.

2. Plow Away the Unneccessary

Snow on the roads is considered a bad thing. Therefore the plows are brought out to clear away the snow on the road. The drivers of the snowplows do not stop to examine every snowflake on the road to determine which ones are good and which are bad. No, the drivers previously determined that if it is on the road, it is bad and needs to be plowed away. No further examination needed.

The same is true in business. A lot of data is strategically worthless. Its speed, direction and magnitude have no relevancy to advancing my strategy. Therefore, rather than spend time examining it, I should just plow it away so that I can move forward.

For example, Walmart’s strategy centers around owning the low cost, low price position. Therefore, Walmart can focus their attention on only dealing with finding knowledge of issues impacting Walmart’s ability to own the low price position.

When Walmart determined that:

a)     Warehouse clubs and supercenters had the potential to offer lower prices than Walmart discount stores; and

b)     Consumers were starting to prefer these formats (direction, speed and magnitude moving their way),

Walmart changed its strategy and diversified into warehouse clubs and supercenters.

Recently, they made the same determination about internet shopping and are quickly and aggressively moving in that direction.

Everything else was plowed away so that they could focus on what really mattered—owning low price. By knowing where to focus, they could ignore and just get rid of all the debris that does not impact that focus. This allows Walmart to efficiently and effectively own its position over many decades.

That is why focus is so important to strategy. Focus lets you know what to look at and what you can ignore. As I mentioned in a prior blog, it is often more important to know what your strategy isn’t than what it is, because there is a lot more data which is worthless than is worthwhile. Defining what is outside your strategy lets you know what is worthless and can just be plowed away.

3. Fly Above the Clouds

No matter how bad the snowstorm, airplanes can usually avoid the turmoil by flying above the clouds. It’s always sunny and snow-free above the clouds. And that leads to quick and easy travel to the destination.

A similar situation exists in the business world. Current business fads and daily crises can cause all sorts of turmoil. Bouncing from fad to fad or crisis to crises is like bouncing around in a jet going through a storm. It slows you down and keeps you from your intended destination.

Strategists need to get companies to rise above these current temptations which suck up a company’s time, just like jets rise above the clouds to escape turmoil. Once you get above the clouds, you can see clearly. The same is true in business. If you stop getting bogged down in the petty distractions of the moment, you can see more clearly what is truly important.

Rather than follow the current fad, follow the larger game plan. After all, one rarely wins a strategic position when following others to get to the same location as they are. Winning comes from differentiation, not imitation. Rise above the fray to clear the path to your intended destination—the place where you can win.

SUMMARY
Although some data can be useful for strategy, most is just a wasteful distraction. And even the useful data only becomes useful if it is converted into knowledge. Therefore, instead of wasting time trying to absorb as much data as you can, follow the tricks used to deal with snow:

1. Focus on the Big Picture by looking at “Strategic Radar” (showing direction, magnitude and speed) rather than looking at every snowflake (piece of data).
2. Just plow away all the data not relevant to your task of moving forward towards your winning point of differentiation.
3. Fly above the clouds of current fads and distractions so that you can easily see the final destination.

FINAL THOUGHTS
Remember, the winner is not the one who captures the most data, but who gets to the right destination first with the right offering. Don’t let competitors in snow plows pass you by while you stop to look at every snowflake.

Strategic Planning Analogy #505: Secrecy is Silly

THE STORY

One time I was doing some work for a client which I found very frustrating. I kept trying to give them the insight I thought they needed for their decision, but it seemed like my efforts were always a little bit off from what they were looking for.

It wasn’t until much later (after the project was over) that I found out what the problem was. My client had deceived me about what their true intentions were. They wanted to keep their true intent a secret, so they gave me instructions under false pretenses.

No wonder my insights were a bit off the mark. They were designed to meet the false pretense rather than the real objective.

THE ANALOGY

My client was not the only one who likes to keep secrets. Secrets can be found all over the business world. This secretive approach often finds its way into the world of strategy.

There seems to be this idea out there that if a strategy “gets out” and is made public, it ceases to be an effective strategy. Somehow, mere knowledge of the strategy takes away its competitive advantage.

The problem is that the true value of a strategy is in its execution. And if those executing the strategy are kept in the dark, they cannot execute it well. As we saw in the story, I could not effectively do my job when I was kept in the dark.

THE PRINCIPLE

The principle here is that strategies are most effective when they are well communicated, both inside and outside the organization. A secretive approach to strategy diminishes its effectiveness.

The Problems With Secrecy

There are quite a few reasons why keeping a strategy a secret is detrimental to its effectiveness.

1. If your employees do not fully comprehend the strategy, they will not be able to fully execute the strategy. Thousands of decisions are made all over the organization every day. Depending on how those decisions are made, they can move a company either closer to or further away from your desired strategic direction. If the strategic direction is not known all the way down the organization, it will only be random luck if their decisions move the company in the right direction. Remember that your REAL strategy is not what you put on a piece of paper, but what you actually do. So to get what you do to match what you put on the paper, you’d better make sure the doers know what is on that piece of paper.
2. When your employees know what the strategy is, then they can use their insights and initiatives to make the execution even better. By contrast, if just the top executives know the strategy, then the only way to get the strategy executed is by having the top executives order people to do specific actions designed to support the strategy while keeping the strategy behind the actions a secret. This only makes sense if you believe that:

1. All the great ideas are found only at the top of an organization; and
2. A top-down only control of the business like the old communist economies is the best way to go.

The bankruptcy of the old communist system should be proof enough that a top-down only secretive approach has many flaws. The alternative is to let the people at the bottom in on the secret and allow them to make contributions to the effort. Strategies are made much stronger when input comes from the collective intelligence of the entire organization working on a common known goal.

3. Strategies usually include a reason why certain consumers should prefer patronizing your brand over the alternatives. Why should these consumers flock to your brand if you keep your reason for preference a secret? You should be shouting your strategic benefit from the rooftops, so that there is no mistake as to why you should be preferred. And to make the claim believable, it helps to show why your strategic approach makes the claim a true differential advantage.

Take the insurance business, for example. If your strategy is based on low price and you get there by going direct and eliminating the independent insurance agent to save money, let the customer know. Conversely, if your strategy is based on best service, play up your strategic approach of having the best local independents working for you (something the price-oriented insurers eliminated).

Positioning is about owning a spot in the mind of the customer. You won’t own that position if you keep it a secret.

4. The stronger you cement your position and strategy with your customers and your employees, the harder it will be for the competition to take it away from you. In fact, if you make it clear to your competition what your strategy is and how strongly you will defend it, you can cause your competition to no longer want to fight in that space and instead take a differentiating strategy. For example, Walmart has made it clear they will fight to the death to defend their low price position, so most competitors stop trying to win price wars against Walmart and instead go a different route, which strengthens Walmart as the everyday low price leader.

The Faulty Logic Behind Secrecy

Some believe that if you let the competition know what your strategy is, then they can quickly copy it and take it away. That is why they want to keep it a secret. But this thinking is flawed, because there is a big difference between knowing what a strategy is and knowing how to best deliver it.

Great strategies are built upon great business models. And great business models are often very complex and very difficult to imitate.

For example, Southwest Airlines has done very well with its low price strategy. But if a competing airline merely copied Southwest Airline’s low prices, they would not be as successful as Southwest. Southwest’s strategy works because they have a unique and complex approach to their business model, including choice of airplanes, choice of airports, point-to-point routes, corporate culture, and so on. You need the full business model to make the strategy work. This is nearly impossible for an established competitor to convert to.

In another example, Wells Fargo has created success with a superbly executed plan to win via cross-selling.  Now it’s one thing to say “we will win via cross-selling.”  It’s another thing to have a sophisticated business plan designed specifically to optimize cross-selling.  As Wells Fargo CEO John Stumpf put it recently, “We could leave our strategic plan on an airplane and it wouldn’t matter.  It’s all about execution.” In other words, there is no reason to hide the “what” of Wells Fargo’s strategy from competition, because it would take them years and years to figure out the “how” behind the strategy, and by then you’d have made even further advances, so they never could catch up.

Here’s a little secret for you. If a competitor can immediately copy your strategy upon hearing it, then you really don’t have much of a strategy. A good strategy is based upon making a number of deliberate choices about how you operate. Trade-offs are made in certain areas so that you can better excel in other areas. These choices and trade-offs attempt to optimize against your unique strengths and weaknesses. The net result is a complex business model which is not easily copied due to its complexity and its unique suitability to your own situation.

We live in an era of transparency and openness. If secrecy is your only defense, then you are in trouble.

Remember, great strategies try to find a place where YOU can win, not where anyone can win. If anyone can supposedly win there, then nobody will win there, because nobody will have an advantage.

SUMMARY

When it comes to strategy, secrecy is a disadvantage. Strategic secrecy keeps your employees from doing their best, it hurts your ability to own your position with the consumer, and it weakens your ability to scare off a competitor from going head-to-head against you. Great strategies are built upon great business models, which are extremely difficult to imitate. As a result, even if competition knows your strategy, it doesn’t mean they know how to take it away from you. So don’t keep your strategy a secret.

FINAL THOUGHTS

If your strategy is nothing more than a hollow platitude, like “We will be the Best” or “We will be the Most Profitable” then I might consider keeping it a secret, because I would be too embarrassed to let others know how silly my so-called strategy is.

Strategic Planning Analogy #496: The 3 Keys to Success (Part 3)

THE STORY

I heard a great story long ago from a preacher. He was describing a fishing club.  Every week, the club members gathered to hear lectures about how great it is to go fishing. Everyone at the meeting agreed that fishing was great (and loved hearing stories about fishing), but none of the members had ever actually gone fishing. 

A new, younger member of the group listened to the lectures and decided he would go fishing. So he did, and he caught a big fish. The following week, he brought the fish to the weekly fishing club meeting. The audience was excited.  Most had never seen a real fish before.

After that, the fishing club insisted that the young fisherman repeatedly tell stories about his one fishing trip. Of course, this kept the young man so busy that he could no longer find time to fish anymore. So the fishing club was back to not having any members who fished.

THE ANALOGY

The preacher was using his story to compare the weekly fishing meeting to the weekly church service.  Many people at church are like the members of that fish club: They like to hear stories every week about conversions to Christianity (catching fish), but never go out to evangelize on their own. Many may not have ever even seen a new convert to Christianity. His point was that just as odd as it would be to join a fishing enthusiast’s club yet never fish, it should seem odd for a professing Christian to love conversions but never participate in seeking them.

A similar analogy could be made in the business world. A lot of business leaders profess to be enthusiastic about many great business principles, like serving the customer, making employees the most important asset, having a business strategy, and so on. They may talk about these great business principles on a regular basis. The leaders may even convince their followers to also believe in these principles.

But, if nobody in the company actually does anything to support these principles, they become just hollow slogans with no impact. The company becomes as silly as a fishing club that never goes fishing.

THE PRINCIPLE

We are currently on the final blog in a three-part series on the three characteristics which tend to determine whether a business is a great, lasting winner, or a long-term loser. In the first blog, we looked at “Passion” and saw that the winners have a passion for the business and the intricacies of the business model which makes it work in the marketplace. The losers focus their passion on the money that comes out of the business and are only tangentially concerned about the details in how it is made.

In the second blog, we looked at “Direction” and saw that losers choose a direction which follows—either the rules of the status quo or the actions of the leader in the industry. By contrast, winners choose a differentiating direction—either a new business model to better solve an old problem, or an entirely new value equation for a new industry.

In this blog, we will look at “Action.”  The principle here is that winners have a bias towards taking action regarding what they believe. The losers, by contrast, are more like that fishing club. They talk a good story, but never get around to acting upon it.

It’s All About Culture

A bias towards action tends to get to the root of a company’s corporate culture. Some cultures naturally encourage action—a bias towards “yes.” Other cultures have natural barriers which naturally discourage action—a bias towards “no.”

A culture with a bias towards action tends to have the following characteristics:

1. Curiosity
2. A Passion for Experimentation
3. A Tolerance of Small Failures
4. Willing to Take Calculated Risks
5. Allow People Out in the Field Some Independence
6. Permit “Skunk Works” (independent projects)
7. Reduce the Red Tape to Get Things Done
8. Get Tired of Just Talking and Settle Disagreements By Trying Something
9. Put Their Investment Money Where Their Passions Lie.

Of course, if a company is all action with no direction, all you have is confusion and anarchy. So what you want is action focused around a general direction, the direction of strategic intent. You want to get those things done which have the greatest impact on moving the strategy.

This is why all three characteristics of success tend to be linked together.  Without a passion for how the business works, you won’t know what actions to take to improve it. Without a strategic direction in how you want to stand out in the marketplace, you won’t know where to experiment. It all goes together.

Three Types of Actions   

Successful companies tend to focus their actions in three areas.  First are the “tinkering” actions.  This is the idea of never being content with the status quo. The culture is one of never declaring “We’ve Made It!” The thinking is that there is always room for improvement and we should try to find ways to improvement all the time.

You can never just relax and put your feet up on the desk and say we’ve perfected it and we can relax.  The problem with resting on your laurels is that the world is constantly changing. The best for yesterday is not good enough for today.  If you stop improving, a competitor will pass you by.

Therefore, successful companies are always acting to tinker with the current approach to make it better. They ask themselves questions like:

1. What Worked?
2. What Didn’t Work?
3. How Can We Do This Better/Faster/Cheaper?
4. What is the Customer Feedback?

Wal-Mart is a master of the art of tinkering. They are never content; always stretching to improve.

But it doesn’t stop there.  If all the action was on small incremental improvements, companies would never make the major strategic leaps. Therefore, these successful companies also devote a significant amount of time to bringing the future to life. I call this “Big Picture” actions.

Think of Google. Their big picture vision is to advance the consumption of knowledge in a superior manner for consumers, in a way that also offers additional opportunities to leverage their digital advertising strengths. But this is not mere talk. At Google, they do it. 

To get more ads on mobile, Google created an entirely new mobile ecosystem around the Android operating system. To get more ads related to geographic search they invented a whole new approach to geographic search, including sending cars everywhere to take street-level photographs of everything. Google Glass allows people to see the internet all the time in glasses (that will also support ads). Heck, they’ve even invented cars that drive themselves so that passengers can be freed up to spend more time online to see Google’s ads.

Google saw the big picture and made big actions over large sectors in order to pave a path for their strategy. They didn’t wait for these markets to evolve; Google created them themselves in order to control the destiny of their strategy. 

Similarly, Amazon wanted to protect its ability to continue selling books once books went digital, so they acted to create the Kindle ebook devices. They saw the big picture and did what was necessary to protect their strategy. They weren’t talking about fish—they were fishing.

Finally, the third type of action revolves around just doing the things that businesses should do. I call this “Doing What the Experts Say to Do.” Starting with Peter Drucker and moving through the decades to today, there have been a number of experts saying what good companies should do. It involves things like:

1. Finding a Position
2. Investing In Your Infrastructure
3. Investing In Your People
4. Listening to Customers
5. Communicating Well
6. Delegating Properly
7. Organizing Around Competencies

Good companies don’t just read about this stuff—they actually do it. How many companies say they care about their people, yet do nothing to show they care? The good companies make these principles come to life by focusing actions to make it happen. We don’t need a lot more books on what businesses should do. Instead, we need more business who make it a priority to do what is in the books already written.

I remember going to a business roundtable of retail strategists years ago. The mix of retailers represented covered the full spectrum—from very successful firms to very unsuccessful firms. We started the meeting by going around the table asking each strategist to say what was their biggest challenge. 

For the successful firms, there was a variety of high-level problems that were being tackled.  However, for the troubled companies, the challenge was always the same. They said their biggest challenge was in getting people to actually implement the strategy. The losers could only talk about fishing; the winners were actually doing it.

It could not be any plainer. If you can’t implement things, you are doomed to failure. If you can, then the challenge is to pick which successes to go after.

SUMMARY

One of the key differences between business winners and losers is the ability to turn ideas into actions. If your corporate culture has a bias towards actions, you are more likely to succeed. The three types of actions are:

1.      Tinkering—Always looking for ways to do things better

2.      Big Picture Actions—Building the future reality of your grand strategy

3.      Doing What the Experts Say to Do—Putting the principles of good business into action.

FINAL THOUGHTS

So success boils down to just three things—Passion for the Business (and business model), Direction Towards Meaningful Differences, and a Bias Towards Action. Where do you stand in these three areas?

Strategic Planning Analogy #490: The Indirect Route

THE STORY

One time, I was in Chicago on a business trip with some of my co-workers. It was a nice day and we had some time on our hands, so we decided to walk to the convention center, which was only a couple of miles away.

We looked at a map and found a simple, direct street to walk down. It looked easy. What the map didn’t show was the types of neighborhoods we’d be walking through. As it turns out, that direct route took us through a pretty dangerous section of Chicago. As we kept walking, the neighborhood kept getting worse.

My co-workers were starting to fear for their lives. Having grown up in the Detroit area, I was used to bad neighborhoods, but eventually even I was getting fearful.

We saw a taxi drive by and quickly got it to stop for us. Little did we know that we had almost completed our journey by then and the taxi only took us a few blocks to get to our destination.

THE ANALOGY

Had we been more aware of our environment, we would not have chosen that route to walk. Yes, it may have been the most direct, the most efficient, and the fastest route. But it was not the safest route. We needlessly put our lives in danger. It would have been better off choosing a slower, more indirect path that was far safer.

Strategic planning is also about choosing a path—a path into the future. On first glance, it may appear that the best strategic path is the direct route. After all, the shortest distance between two points is a straight line, so the strategic path is drawn as a straight line between where we are now and where we want to be. That type of thinking sounds practical, efficient, and speedy.

Unfortunately, it can also be wrong. The most direct route is not always the safest route. It may lead you into a mine field of difficulties.  The danger could be so great that it destroys the ability for the strategy to succeed.  It does no good to be faster and more efficient if you end up dying before reaching the destination.

No, sometimes the best path is longer and less direct. These paths can be safer and increase the likelihood of ultimate success. 

THE PRINCIPLE

Although we live in an era which emphasizes speed, we need to remember that speed is not the ultimate goal.  The real goal is success. And sometimes the fastest path is not the best path for ensuring success. Therefore, when choosing a strategic path, do not automatically choose the fastest, most direct approach.

The Disadvantage of Bold Moves

There are several reasons why the direct approach can be less effective. First, it tends to loudly notify to the world (and to your competitors) what your intentions are. That can cause those opposing your strategy to wake up and fight you hard to prevent that path. Remember, almost every winning strategy causes someone else to lose. If those who are about to lose find out your intentions, they will try to keep you from winning. 

However, if you act more slowly and less directly, the opposition may not detect the threat as being as imminent or as devastating as it is. Therefore, they may put up less of a fuss in trying to stop you. By the time they figure it out, it may be too late for them to stop you.

Take, for example, Wal-Mart’s desire to be a significant player in banking. Wal-Mart first tried a very direct and fast approach to this strategic intent. Back in 1999, they applied for the right to buy a bank in Oklahoma.

This bold action quickly awakened the status quo banking industry to the threat posed by Wal-Mart. The banking industry immediately did everything in its power to influence the government to stop Wal-Mart from getting that bank. Congress was inundated by whatever forces the banking industry could bring to bear to stop Wal-Mart from ever buying a bank. And it worked. Wal-Mart could not buy a bank.

A few years later, in 2002, Wal-Mart tried again by attempting to buy an ILC (Industrial Loan Company), which is a step lower than a full-fledged bank. That also failed.

At this point, Wal-Mart tried a different tactic—the indirect route. Slowly, Wal-Mart started forming alliances with companies performing banking services. Since Wal-Mart did not own these businesses and since the partners were already allowed to be in these businesses, they would be difficult to stop. Also, because Wal-Mart added these pieces slowly in small chunks, no single act was large enough to get the industry in an uproar.

For example, Wal-Mart did deals with Moneygram and Sun Trust Bank for services like wire transfers, money orders and check cashing. It did a deal with Green Dot to create the Walmart Money Card, a reloadable prepaid card. And most recently, Wal-Mart worked with American Express to develop the Bluebird Card, a more aggressive move into the prepaid card business. 

Slowly, Wal-Mart is putting together a powerful financial offering, branded together in the store as Walmart Financial Services. It is to the point now where Walmart’s website has claimed them to be “a trusted name in financial services.” The slower, indirect path is working far better for Walmart than their earlier, more direct approach.

   

The Disadvantage of Out-Pacing Your Stakeholders

Another problem with moving too quickly is that you can move faster than your stakeholders are willing to go. No strategy works in isolation. Success depends on getting alignment with all sorts of other stakeholders, like your customers, your regulators, your suppliers, etc. If you get to far ahead of your partners, the strategy can fail.

For example, when McDonald’s wants to enter a new geographic area with restaurants, it does not just get some real estate and put up restaurants. That could be too fast for its suppliers. McDonald’s wants to guarantee that the burgers worldwide come from similar beef and the french fries come from similar potatoes. Therefore, it takes the slower, more indirect route of first working with farmers and distributors to make sure the right kinds of cows and potatoes in the right quantity are in the pipeline so that the stores have the right stuff to sell.

And in the Walmart example above, if Walmart had advanced directly from nothing into full-service banking in one step, it might have been too much for customers to accept. By moving slowly, Walmart has been able to move consumer perceptions along to allow them to accept getting financial services from a discount store.

One of the more interesting examples, however, is in the online poker business. Online poker sites can be extremely profitable for the companies who run them. However, the US government was banning the sites because on-line gambling is illegal in the US. The on-line sites could have directly tried to fight this, but they knew they would fail. So they took an indirect route.

A few years back, I remember all of the sudden seeing poker championship games being broadcast all over the place on cable TV in the US. Why the sudden surge in broadcasting Poker Tournaments, I wondered.

Well, here’s the story. The online poker people wanted to change the perception of poker from being a form of gambling to being a game of skill. That is because on-line gambling is defined as being a game of luck, which is illegal in the US. But games of skill are not considered gambling. 

What better way to convince people that Poker is a game of skill than to broadcast it like a sporting event on sports cable networks? The shows created poker winners who were becoming famous like athletes for their skilled plays. They had announcers on the show talking about the skilled plays being used by these skilled players.  

Slowly, but surely, perceptions were being changed. Poker was no longer just viewed as distasteful gambling hidden away in dark places. Now it was a skilled sporting event out in the wide open lights. Over time, this approach should be far more successful than the direct approach for the on-line poker companies.

SUMMARY

A key part of strategic planning is developing the proper path to get from where a company is today to where it wants to be. Due to the desire to move quickly, many firms try to build direct paths to the desired future. However, direct paths can be fraught with dangers large enough to prevent success. As a result, it is often the slower, less direct approach which has the greater likelihood of success.

FINAL THOUGHTS

If you go online to choose a path to drive your car to your destination, the software often asks you which type of path you want: the most direct, the fastest, the one using the most highway, the one using the least highway, etc.  In other words, the software recognizes that the fastest path is not always the path you desire. If software can recognize that, then so should strategists. Check out other options which may lead increasing your chance of success.

Strategic Planning Analogy #482: Owning Vs. Driving

 

THE STORY
In automobile racing, the drivers get all the glory.  They are the heroes; the ones who get in all the photos and are adored by the race car fans.

Yet are the drivers really all that special?  Most are mere employees of large race car companies.  They don’t own the car they drive in the races.  Heck, they don’t even own the clothes they wear while driving.  Both the clothing and the cars are covered with decals and logos of the company sponsors who invest in these large racing enterprises.

Winning in car races requires more than just drivers.  There are the car designers, the pit crew, and a whole host of others.  Yet the glory goes to the one driving the car.

In an episode of The Simpsons, there was a child’s race of coasting “soapbox derby” cars down a hill.  While all the boys were clamoring to be the drivers, one of the coaster car designers lamented, “It’s all in the design.  The drivers are basically ballast in these cars.”  Yet the drivers get the glory.

 

THE ANALOGY
The drivers don’t own anything but they get all the glory.  That’s because, to most fans, it’s not who owns the car that is important, but who drives it. 

A similar idea applies to all businesses.  Many business leaders seem possessed with the idea that their company has to own a lot of things.  They are constantly involved in a wide variety of acquisitions and other M&A activity.  They focus on building a portfolio of owned businesses.

Yet is ownership really all that important?  In auto racing, the glory goes to the one who drives the car, not the one who owns it.  Similarly, as long as your company is driving the way an industry works, does it really need to own that many pieces of the industry?

The key is not ownership, but control.  And as long as you are in control (behind the steering wheel), you can have as many people putting their logos and decals on the venture as they want.  Because it is the driver who gets the biggest prize.

 

THE PRINCIPLE
The principle here has to do with control.  Those who control how an industry or business ecosystem works control how the money flows.  So a business with more control can make more of the money flow to themselves.  

Increasing ownership does not necessarily lead to increasing control and increasing profitability.  In fact, as we will see later, increased ownership can actually reduce control and profitability.

There are many alternatives to ownership, including alliances, joint ventures, partnering, outsourcing, buying on the open market, and a host of contractual arrangements.  These can often lead to greater control and greater profitability than ownership.  If you do these types of arrangements properly, you can be in the driver’s seat for the industry—and get the glory (and the biggest prize).

Problems With Transfer Pricing

Ownership can destroy control and profitability in many ways.  First, there is the problem of transfer pricing.  As an item moves through the pipeline—from raw material to the hands of the ultimate consumer—there are numerous places to transfer ownership, from the extractor to the part supplier to the assembler/manufacturer to the distributor to the retailer to the consumer. 

At each point along this chain a transfer price is negotiated.  Those with power control who benefits the most from how the transfer price is negotiated.  For example, Walmart is a very powerful part of many pipelines. When manufacturers sell to Walmart, I’m sure the Walmart does much better on the transfer price than do the manufacturers or other retailers negotiating with those same manufacturers.

A problem can frequently occur, however, if a company owns too many parts of that pipeline.  If they forward and backward integrate significantly through acquisition, they can end up owning most of the transfer points.  In essence, the company ends up negotiating with itself.  Therefore, the fully integrated company cannot use control, power and leverage to extract above average returns through transfer pricing.  After all, if you own both sides of the negotiating table, if one side wins and the other loses, you are no further ahead in total, because you own the winner and  the loser in the negotiation.  In other words, the extra ownership reduces your control over how the money flows in transfer pricing.

Problems With Alienation

The mere fact that you own an additional piece of the supply chain can destroy the value of what you have purchased due to the reaction of others.  For example, let’s assume you buy one of your suppliers—someone who was a supplier to you as well as some of your competitors.  Those competitors, who were happy to purchase from that supplier before you owned it, may no longer want to use the supplier after you own it, because they don’t want to give business to their competition.

For example, when Walmart purchased McLane Distribution, it thought it would gain knowledge of fast moving consumer good distribution in groceries.  What they failed to consider was how many convenience store customers would drop McLane as their supplier because they didn’t want to help Walmart.  Walmart had to sell McLane in order for McLane to keep its customers.  So, by owning McLane, Walmart destroyed McLane’s power to control its other customers.

Problems With Focus

The more diversified your ownership, the less focused one tends to be.  It takes considerable effort to be state-of-the-art at everything all the time.  There are more opportunities to slip up.  However, if you keep your sphere of ownership smaller, you can specialize at being the very best in a narrow focus.

There are reasons why people outsource things like payroll and IT and other back-office functions to specialists.  That way, they know that there is someone whose whole livelihood is based on being the very best in that area doing the work for them.  Specialization makes those outsourcing firms more powerful and it allows their customers to focus on the areas more critical to their success.  It is a win win.

Nike and Apple

Nike and Apple are two firms which avoid a preoccupation with ownership and instead preoccupy themselves with control.  In both cases, Nike and Apple focus on only two areas—design (business model and product design) and consumer image.  Pretty much everything else is outsourced (including the making of the products).  Nike and Apple own the key drivers for their whole ecosystems.  It puts them in a powerful position to drive how the rest of the entire ecosystem operates, even though they don’t own it.  And both are doing well.

Apple is able to focus in on what matters and leave the rest to the other experts.  And because it is the driver, it negotiates tough deals.  Just ask anyone in media who has had to deal with Apple.  By contrast, Sony tried to own everything—from design to manufacturing to even trying to own the media.  The added ownership worked against Sony.  They lost focus and could not win the battle on transfer pricing.  Worse yet, even though it owned most of the parts, Sony did not build as integrated a business model as Apple.  So Apple—owning fewer of the parts—created a superior integrated model.  Apple was like the race car driver—they didn’t own the car, but they made it go in the right direction because it was their hands on the wheel.  And now, Apple is very profitable and Sony is struggling.

Implications

The key implication of all this is that ownership should not be the automatic default option when looking at how to gain an element for one’s strategy.  In fact, there are so many reasons why other alternatives may be superior that acquisition may need to be the option of last resort.  Ownership may need to become the exception, not the rule.

Before jumping to the conclusion of ownership, check to see if there are ways to gain control without the need to own.  Find a way to drive someone else’s car and steal the glory.

And finally, instead of focusing on how to do M&A deals, focus on how to do non-ownership deals in such a way they you get to be the driver.

 

SUMMARY
When developing strategies, one often finds a need to add certain elements in order to succeed.  But just because you need them does not mean that you have to own them.  It only means that you have to control them.  And in many cases, you gain more control and more profitability if you do not own them.  Therefore, do not automatically default to acquisition as the way to get what you need.

 

FINAL THOUGHTS
A read a study recently which looked at businesses and their level of successes with acquisition, partnerships and building from scratch.  Their conclusion was that acquisition tended to produce the least amount of success when compared to building or partnering.  Their conclusion was to only acquire when building or partnering didn’t make sense.  That sounds logical to me.