Tag Archives: strategy

What Holds You Hostage?

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“You can either work on the plan the Board expects, and will not object to, or you can think differently about a new destination that is more important,” I said.

“But, I operate at the pleasure of the Board,” Kylie objected. “They write my paycheck. They expect solid quarterly results. I cannot turn in a plan based on a whim.”

“Then, your thinking has to be more than a whim,” I prodded. “Until then, you are hostage to the normal, predictable expectations that makes your Board comfortable. And, when they are comfortable, you are comfortable, and nothing remarkable will be accomplished.”

“Thinking this way sounds dangerous, a bit risky. If I do what you suggest, the Board might reject my plan and me along with it.”

“Then, you will no longer be a hostage,” I nodded.

“I might also be without a job,” Kylie appeared nervous.

“Think about this question,” I countered. “What moves would you have to make to double the revenues in your company in the next 12 months?”

“That would be impossible,” Kylie pushed back.

“Maybe, maybe not. The point is not to double your revenue, but to examine the moves you might make to do it. What might you explore?”

The Frame of the Plan

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“You set me on a path to think more clearly about the future in our planning,” Kylie informed me. “But what I am thinking, might not be finished in the timeframe of this plan.”

“Extraordinary achievement is not the goal, which may be outside of the timeframe of your plan. Extraordinary achievement is a way of life. It is the journey toward the goal.”

“But my Board wants me to have a plan for next year, in fact, they want me to have a plan for next quarter,” Kylie was stumped.

“Yes, to achieve something extraordinary, your company has to be in a healthy state. Next quarter requires solid action. But, if all you ever think about is short term results, eventually your success will be short termed. If all you ever do is the minimum, pretty soon, your minimum becomes your maximum.”

New Patterns

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“A blank sheet doesn’t give me much guidance,” Kylie announced.

“Agreed,” I replied. “But if you are going to create unconventional results, you have to think differently. Creativity is all about the future. If we could be creative simply by thinking about the past, we would all be successful. But, we’re not. Only those who imagine the future will create it.”

“I am still stuck with a blank sheet,” Kylie repeated.

“You are very good at analysis. Think of all the elements that might impact your future, things like market trends, regulation, labor, technology. Think about where those are headed, what is their direction? What events might bend their path? Then what happens? Draw those trajectories onto the edge of your blank sheet. See where they intersect.”

“My blank sheet isn’t blank anymore,” Kylie smiled. “In fact, it is become cluttered with new patterns.”

The Trend is Your Friend

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“But these regulations are designed to stifle business,” Rory complained. “The government rules that we play under are political initiatives designed to drive us under.”

“Then, what are you waiting for?” I asked.

“What do you mean?” Rory replied.

“Are you waiting for the next political election, hoping for a new regime that will return your operating climate back to the way it was?”

“That would be nice,” Rory’s face lit up.

“Nice is like hope,” I said. “Ain’t gonna happen. Even if you do win a political victory, the likelihood of a return to the good old days will not happen. Instead of fighting or waiting, figure out how to take advantage. The trend is your friend.”

First Look Outside

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From the Ask Tom mailbag-

Question:
Our company is preparing for our annual strategic planning session. Sometimes, it just seems like an exercise to increase our net sales by ten percent and our net profit by two percent. If that is all we are doing, why do we spend two days off-site?

Response:
Some companies think that to increase our net sales by ten percent, we just need to increase our sales team and their efforts by ten percent. Some companies think that to increase our net profit by two percent, we just need to become more efficient and cut waste by two percent. These may be worthy objectives, but we hardly need two days off-site to think like that.

Strategic planning requires that we look at those external circumstances that are constraining the defined objectives in front of us. Adding ten percent more sales people to the team will not increase sales if our market is no longer interested in our product or service. What has changed about our market? What has changed about our competitors? What has changed about our vendors?

Cutting waste by two percent does not inform us about the changes in technology that create efficiencies on the order of 10 percent or 20 percent. What has changed about technology surrounding our business model? What has changed about our external labor system that may require us to look harder at technology as a solution?

What headwinds are created by new regulations, financial regulations, safety regulations, environmental regulations? What is the financial climate for infusions of external cash, lines of credit, institutional debt, private equity?

Most of these questions are not about internal factors, but external systems that have an impact on the way we internally organize.

Customers, Strategy and Structure

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Structure follows strategy. Strategy follows customers. It all starts with a customer.

  • Who is your target customer segment?
  • Who is your best customer?
  • What is your best customer’s profile? How do we recognize them?
  • What does your customer need? What is necessary in your customer’s life?
  • What does your customer want? What is your customer’s preference?
  • How will you collect that data? How much data do you need?
  • How will you analyze that data?
  • How will you verify the accuracy of your analysis?

Strategy follows customers?

  • Based on what your customer needs, what is necessary in your customer’s life, what product or service can you produce to satisfy that need?
  • Will your customer be willing to pay a price for your product or service that allows you to make a reasonable profit?
  • In the profit for your product or service, is there enough volume to sustain your company’s operation?
  • Is your product or service exclusive to your company, or do competitors offer a similar product or service perceived on an equal basis?
  • Based on your customer’s preference, what will make your customer decline your competitor’s offering and buy from you? What is your competitive advantage?
  • How can you create that competitive advantage in a way that is sustainable, difficult or impossible to copy by your competitor?
  • How can you effectively communicate the competitive advantage to your customer?
  • How can you operationalize your competitive advantage to make is real, observable and obvious?

Your responses to these questions will guide your structure.

  • What core functions do you need to create the product or service your customer needs?
  • What support functions do you need to meet your customer’s preferences in the way they want to buy?
  • In each function, what is the level of work required to sustainably produce the desired outputs?
  • In what way does each function need to integrate with its neighboring functions related to work handoffs?
  • What is the output capacity of each function, and how does its output match the output capacity of its neighboring functions?

Customers drives strategy, strategy drives structure.

Know Thy Competitor

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From the Ask Tom mailbag –

Question:
In your recent workshop, you mentioned that timespan and levels of work could help us understand our strategic platform and compete more effectively against our competitors. Can you elaborate?

Response:
Timespan and levels of work can easily be applied to your strategic platform. Levels of work helps us understand the complexity inside our business model and the moves we make to resolve our challenges, solve our problems and make our decisions.

The future is uncertain and ambiguous. The further in the future, the more uncertain. Yet, in the face of that future ambiguity, we still have to make decisions today. The near term impacts of our decisions may be markedly different from long term impacts. The more complex our business model, the more we have to look into that future to make our strategy more effective.

The strategy we employ contemplates a time frame. That framework can be discreetly segmented into levels that help us understand our strategy in the midst of our competitors. It is often difficult to see ourselves, sometimes much easier to see our competitors. If we can effectively analyze our competitors, there is a good bet that we contain very similar characteristics. If we want to beat our competitors, we have change our strategy. But how?

Levels of work provides some guidance.

  • S-I – Product or service strategy. Timespan – 1 day to 3 months.
  • S-II – Process or method strategy. Timespan – 3 months to 12 months.
  • S-III – System strategy. Timespan – 1 year to 2 years.
  • S-IV – Multi-system integration strategy. Timespan – 2 years to 5 years.
  • S-V – Market (responsive) strategy. Timespan – 5 years to 10 years.

S-I – Product or service strategy. Timespan – 1 day to 3 months.
Most companies start out this way. The startup entrepreneur has an idea that people might want to buy this or that product or service. If it’s a great idea (lots of people might want it) a business is born. People buy it because it is useful or they like it. If this startup business is the only company with this product or service, they make money. People may even be willing to put up with a bit of wonkiness, limited availability or cumbersome utility because it’s the only product or service that does what it does.

If enough people buy it, the company attracts attention. First competitors simply copy it, and now there are two companies with a relatively identical product or service (as perceived by the customer). Look around. Your product may not be so unique, few are in this internet age. And, if it is unique, it won’t be for long.

What do you do if you wake up one morning and find your product or service is one of a handful of look-a-likes. Move up to the next level. Move from a product or service strategy to a process or method strategy. It is no longer enough to just have a product because several others have an identical offering. What does process allow you to do? Faster, better, cheaper. Other companies may have an identical product, but if you have a process, your offering may be at a lower price, a little less wonky, more available in more places.

S-II – Process or method strategy. Timespan – 3 months to 12 months.
It’s doesn’t take rocket science to understand that your company can sell more of an identical product or service if you drop your price. But don’t think you can drop your price and stay in business if you are simply eroding your margins. Process and methods allow you to make moves related to pricing, crank out more finished product, with faster output. This S-II strategy will beat your competition.

What do you do if you wake up one morning and find your competitors not only met your price point, but undercut it by another couple of points, on sale at an even lower price. You assume they must be buying off your customer, eroding their margins and will soon price themselves into bankruptcy. Though shalt not kid thyself. While you were figuring out how to make it better, faster, cheaper, so was your competitor.

S-III – System strategy. Timespan – 1 year to 2 years.
How do you beat a cheaper price? At some point, even with brilliant process and method, there is no margin left. There is no more race to the bottom, because everyone is there already. But some things happened on the way to the forum. As volume pushed higher, that small decimal defect became a larger number, a substitute material didn’t hold up as well, the cheap paint flaked off. Customers, used to an expected standard become finicky, think twice before they purchase. They don’t need a third widget to go with the two broken ones they already own. How do you stand out?

Offer a warranty. With a warranty, you can even push your price point back up. A warranty removes the risk in the purchase. But warranty claims can eat your lunch. Product replacement, warranty service can be expensive. Do NOT offer a warranty unless you have a system that builds in consistency and predictability. If your competitor tries to match your warranty and they don’t have a system, you win.

Of course, your competitors are not stupid. They can figure out your system, sooner or later, and copy it, so they can offer the warranty as well. How do you beat your competitor who has figured out your materials, your sequence, your tooling.

S-IV – Multi-system integration strategy. Timespan – 2 years to 5 years.
At this point, the selection of your product or service over your competitor’s has little to do with the product or service. All the product or service offerings are identical, quality is high and predictable. The customer’s choice now has more to do with the support systems that surround your core system (because all the core systems are the same).

Your logistics system becomes more important, your customer service system, return policy, store location, response time system. And this is where scalability lives. A company may become profitable at S-III – System strategy, but can only scale at S-IV – Multi-system integration. The competitors are fewer, but the fight is fierce. The big difference between a single system MRP (Materials Resource Planning) and a multi-system ERP (Enterprise Resource Planning) is integration.

S-V – Market (responsive) strategy. Timespan – 5 years to 10 years.
And, here is a huge sea change. Everything discussed so far looks inside the organization and the way it works. These are all internal systems with an internal focus. When all your competitors have fully integrated systems, how do you win? You can no longer depend on an internal focus, you now must look outside, looking at your external systems. Those external systems take the form of market systems, regulatory systems, finance systems, labor systems, technology systems. These external systems are not under your control, yet your success now depends on your ability to navigate them.

Look at your competitors to determine your current strategic platform, based on levels of work. Beat your competitor by moving to the next level.

Take Your Company to the Next Level – Statutory Platform

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It is not unusual for a company to make political contributions or hire a lobbyist to engage in political influence. In the US, it is illegal to pay a public official for political favors, but, perfectly legal to pay a registered lobbyist to exact political pressure on a public official. A company may decide NOT to play at this level, but the platform exists.

  • S-VI – Statutory platform, where statutes and regulations specifically dictate competitive advantage.
  • S-V – Industry platform, where our enterprise competes using industry standard practices.
  • S-IV – Market platform, where our multiple systems integrate with market systems.
  • S-III – Single serial system platform, where we see the introduction of warranties as a competitive edge.
  • S-II – Process implementation platform (of someone else’s system, like a franchisee).
  • S-I – Product or service platform, where it’s all about the product.

It is one thing to follow an industry standard, an industry guideline. It is quite another to follow a standard dictated by statute.

The Wright Amendment (introduced by Rep Jim Wright in 1979) was a United States federal law that governed traffic at Dallas Love Field, an airport in Dallas, Texas, to protect Dallas/Fort Worth International Airport (DFW) from competition. The amendment prohibited carriers from operating full-size airliners between Love Field and destinations beyond Texas and its four neighboring states. Further amendments in 1997 and 2005 added new states and relaxed aircraft rules for long-range service. The law was partially repealed in 2006 and then fully repealed in 2014. -Wikipedia

Which airline had a hub at Dallas-Fort Worth International Airport (DFW)? And, which airline was headquartered at Dallas Love Field (DAL)? If you guessed American Airlines and Southwest Airlines, you would be correct. Southwest Airlines, as a strategy, enjoyed the exclusivity of Dallas Love Field, but they were prohibited, by statute, from specific operations, landings and take-offs from 1979 to 2014. My math says 35 years, they were effectively blocked.

Most modern cars run well on unleaded gasoline, not so well on ethanol. Marine operators are allowed to sell a non-ethanol variant of gasoline because if ethanol fuel sits too long in an engine, it “rots the hell out of the seals.” Why are we now required to purchase unleaded gasoline with an ethanol additive? Who are the players? It is one thing to follow an industry standard, quite another to follow a standard dictated by statute. Archer-Daniels Midland is defending an anti-trust suit for market manipulation.

Statutes like this do not spring up in a two week time period. Timespan at S-VI ranges from 10-20 years. This is not a short term play. A company may not adopt this strategic platform, but may suffer the consequences from their competitors. If you are not sure what platform you are playing on, look at your competitors.

Take Your Company to the Next Level – Market Platform

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Strategic platforms help us understand our business model and where we compete for customers, what our customers expect from us and how we go to market.

  • S-V – Industry platform, where our enterprise competes using industry standard practices.
  • S-IV – Market platform, where our multiple systems integrate with market systems.
  • S-III – Single serial system platform, where we see the introduction of warranties as a competitive edge.
  • S-II – Process implementation platform (of someone else’s system, like a franchisee).
  • S-I – Product or service platform, where it’s all about the product.

As the organization grows from product to process to system, it ultimately ends up with multiple systems. The hallmark of an S-IV company is its ability to integrate those systems and subsystems. Internally, that integration inspects how work travels from one function to the next with a close eye on the capacity of each system and how that capacity impacts the capacity of its neighboring systems.

Until the organization emerges as S-IV, there is one system in its strategy often overlooked. That system is NOT internal, it is external. It operates like any other system, but it sits outside the company and it’s called your Market.

When the organization matures into S-IV, it finally has the capability to look outside. Prior to that, all energy is directed inside, on the product, process and internal systems. At S-IV, the company blossoms to look outside. That outside look is market responsive.

A market responsive strategy looks at the internal product or service offering through the lens of the customer, through the lens of the market. Adjustments are made in the product, not because of technical expertise, but because the market demands it. Car manufacturers took out ashtrays and installed cupholders. Why? Because the market demanded it. The market is mindful of gas mileage, but, at the end of the day, it demands cupholders.

Take Your Company to the Next Level – System Platform

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Business platforms help us understand the condition of our business model, its requirements, characteristics, competitive edge.

  • S-V – Industry platform, where our enterprise competes using industry standard practices.
  • S-IV – Market platform, where our multiple systems integrate with market systems.
  • S-III – Single serial system platform, where we see the introduction of warranties as a competitive edge.
  • S-II – Process implementation platform (of someone else’s system, like a franchisee).
  • S-I – Product or service platform, where it’s all about the product.

Bob’s Burger was all about the product. Assuming Bob’s Burger is the best burger around, how do you beat Bob? You get more trucks, geographic expansion. And, geographic expansion (more trucks) comes with its own set of problems. The quality of the burger begins to suffer. Raw ingredients scream for a supply chain where there is none, several trucks run out of lettuce. One truck runs its griddle too hot, the burger tastes like shoe leather. Customers expecting Bob’s Truckburger to be as good as the original Bob’s Burger are disappointed. Worse, Bob is in no-man’s (no-person’s) land. Expansion costs money. The unit cost for more trucks and more people are driving up overhead. A little bit of success can create a whole lot of overhead. Bob is everywhere with his new trucks, and, he is struggling. Bob has plenty of revenue coming in, and, profitability is elusive.

How do you beat Bob’s Truckburgers? Move to the next level, the system level. Bob had trucks, but no system. Bob could have purchased a system from McDonalds, Burger King, Wendy’s. If Bob had, he would never run out of lettuce, because the supply chain would be a system with ordering min/max’s. The griddle in each truck would always be the same temperature, calibrated on a monthly basis. Every burger would always taste the same. This is scaling. Scaling requires a system. Scaling without a system is a disaster.

Outside the burger world, you will notice a business model with a system frequently offers a warranty, a promise. A warranty promise without a system is a disaster. A warranty promise with a system yields predictable results. And, for the first time, profitability emerges. If you want to improve your profit, improve your system.