Wednesday, February 28, 2007

Strategic Planning - learning by reflection

This is the tenth is a series of articles about how to get more from your strategic planning.

10. Reflect on Success and Failure

All organizations that are successful over long periods of time are learning organizations. This requires that the management team learns from its experience. It's worthwhile, periodically, to take some time to reflect on both your sucesses and your failures, because each has something to teach you about what works and what doesn't work. The most important thing to question is why you succeeded where you did...and also, why you failed. Do not make the mistake of focusing on one over the other, because they both offer great learning opportunities.

One of the most difficult things to do in reflecting on success and failure is to separate the effects of good decisions and good situations. This is important, because we want to learn to make good decisions under any circumstance, but circumstances are unlikely to co-operate by repeating themselves. A good example of this can be found in Disney's efforts to restore profitability in their theme park business after 9/11. The situation caused almost all of the decline in profitability, yet the management team made many shifts in strategy hoping to find a better way to make money with the park operations. In the final analysis, profitability returned as the economy resumed growth and people resumed travelling to the Disney parks. On reflection, it would be easy to confuse increased profitability in this case with good strategy, but many strategies would have resulted in increased profitability in that situation. Likewise, Wal-Mart's same-store sales numbers suffered as the economy recovered - not as a result of poor strategy, but rather because some consumers, who shifted to buying at discount stores when the economy got tight, shifted away when things improved. In my mind, these are both cases of what I think of as "living by the sword and dying by the sword". In your own strategy, if you succeed by riding the pendulum one direction, think about how you can succeed as it swings back.

Monday, February 26, 2007

Strategic Planning - Pricing for profit

This is the ninth in a series of articles about how to get more out of your strategic planning.

9. Don't Underprice

It's hard to push the idea of charging for value when some of the most notable strategic success stories of recent years have been commodity players. After all, if low prices worked for Southwest Airlines and Wal-Mart, shouldn't they work for everyone? The answer is NO. In any industry - any industry at all - there is only ONE winning company that follows the low price strategy, and that only occurs if that company has a real, tangible, differentiating advantage in cost (not price - cost). In many industries, what this means is that there is a crowd of bottom-feeders all thinking they will be the next Wal-Mart - with none of them succeeding. I can think of very few more certain recipes for failure than to pursue the low price strategy without a serious cost advantage based on strategic competency.

It's a hard fact that 90% of pricing mistakes are underpricing. The reason is quite simple - we are reluctant to lose customers for any reason, and - often - we have trouble believing in the true value of what we are selling. To succeed, we have to escape this trap. There are two essential ideas necessary for this:

1. Understand your true value and be confident in it. - it's much easier to hold your ground on price when you know what your added value is worth. The sale makes more sense to everyone - pay X get Y value, or pay less and don't get it.

2. Be willing to lose customers on price. Good products, high quality and excellent service are not for everyone. What this means is that some customers just aren't willing to pay for anything more than the minimum value. Your task is to get those low-value customers to but from someone else, so you can focus on the customers who value what you do well.

This is one of the hardest tips I've given, because it's terribly difficult to watch customers go somewhere else. Just remember, at the end of the day, it's not how much you sell, but how much you make that really matters.

Sunday, February 25, 2007

Strategic Planning - executing better

This is the eighth in a series of articles about how to get more out of your strategic planning process.

8. Execute Better

Execution is the Achilles' heel of strategic planning. Far too often, we create elegant, wonderful strategies that fall short of our expectations simply because of lackluster execution. There may be many reasons for this, but there are two very common reasons which can be mitigated by proper strategic planning processes.

The first common reason execution becomes an obstacle is that we always want to commit to more than we can actually accomplish. In terms of Simplified Strategic Planning, this amounts to setting more strategic objectives than your team can realistically implement. There are two basic rules of thumb I use for matching our commitments to our capacity. The first is an absolute number - no team will be effective implementing more than 10 strategic objectives. Sure, you may get more than 10 objectives done, but with real strategic objectives, you will certainly be taxing every part of your organization to do so. And why not? Because you will eliminate your ability to handle unforeseen events, and cripple your organization's ability to take advantage of serendipitous opportunities. The second rule of thumb is that you generally want as many objectives as you have effective implementation leaders in your organization. While it's possible for an implementation leader to do a great job on two or even three strategic objectives, you will be reducing his or her ability to perform in any other function in your organization. You also will lose a certain amount of focus, which is usually going to reduce effectiveness. Please note that this rule of thumb refers to "effective implementation leaders" - not "strategic planning team members". While we like to assume that all of the members of our strategic planning team will be effective implementation leaders, this is often not the case.

The second common reason execution stumbles is that we often do a poor job of monitoring our progress on implementation. Most strategic plans are poorly designed for monitoring - there are few, if any, measuable milestones and no built-in process for routine monitoring. In addition, we have a tendency to put the monitoring of strategy implementation at the bottom of our priority list, because it is seldom urgent. As we've pointed out so many times in our strategic planning books and strategic planning seminars, you must commit to monthly monitoring of your progress if you want good execution on your plans.

Friday, February 23, 2007

Strategic Planning - the power of segmentation

This is the seventh in a series of articles about how to get more out of your strategic planning.

7. Segment Better

This tip goes with some of the previous tips very well. When I tell people they need better market segmentation, I don't mean that they need more market research data, or anything like that (although some of you surely do need more market data). What I really mean is that your segmentation looks just like everyone else's segmentation.

Remember tip #3, "Be different"? This is perhaps one of the easiest ways to become different that I can think of. You see, when you define a really unusual market segment that no one else uses, you start to think strategically about how to provide better products and services for that market. Because you are the only person targeting that segment, it doesn't take long before you become the preferred supplier for that segment. Now, that may not lead to 100% market share (although sometimes it does!), but it will enable you to have the first, best shot at any customer within that segment.

Here is a good way to re-think your segmentation productively: Take a look at a list of your 10 favorite customers - the ones you really make great money on. Ask - do any of these customers belong to a grouping that is NOT recognized as a segment in my industry? If your industry is segmented by consumer age and gender, for example, perhaps you should target by ethnicity, or hobbies. If you are in a B to B market that is segmented by industrial classifications like automotive and appliance, consider segmenting by size, ownership or creditworthiness. Not every segmentation you consider will work, but those that do will create golden opportunities for you!

Thursday, February 22, 2007

Strategic Planning - Understanding Value

This is the sixth in a series of articles about how to get more out of your strategic planning.

6. Understand Value

Now, when some people say value, what they really mean is "cheap", and that's not what I'm talking about here. I'm talking about (Q+S+E)/P. Here, Q=Quality, S=Service, E=Effectiveness and P=Price.

The hardest part of understanding this is to know that each customer has his or her own approach to value...and that the definition of value may change depending on the circumstances. For example, let's say my wife asks me to get a loaf of bread on the way home. Am I going to drive 10 miles to Sam's Club and buy a 12-loaf bundle? Of course not - I value my time more than that. So I have my choice of three stores within 2 miles of my home - one is cheaper, almost as cheap as Sam's, one is dreadfully expensive, but very high quality, and the third is pretty expensive but there is never a line there because the store is very well staffed.
Where will I go to get that loaf of bread? If you said "it depends", you are right. If we are having a fancy dinner, I might stop at the really expensive, high quality store. If I'm pressed for time, I might stop at the really quick store. And if I have to buy a lot of other, very commodity oriented stuff (like Kleenex and bleach), I may go to the cheap store. But in each case, my value equation has changed.

To take advantage of understanding this, you have to accept that you won't always get every customer - and, in fact, sometimes you won't get 100% of the business from ANY customer. This is long as you do get some customers some of the time, and their reasons for choosing you are well integrated into your operations, marketing and pricing. What do I mean by this? Take the expensive, high quality store in the example above. Their operation includes more highly paid people than either of the other stores, because they spend a good deal of time and money on learning about the best products and why those products are better. This helps the store to sell a pound of salami for $18, because every staffer involved can explain to you why you would choose this product over a $3.69 package of Oscar Mayer salami from another store. In addition, choosing just the right - often unique - products to sell takes a lot more know-how than goes into merchandising in a more run-of-the-mill store. And, of course, there must be additional margin to compensate for the increased difficulty of running a specialty store.

So - do you understand the value your customers see in you? Most successful companies have a firm, clear answer to this. Often, profitability problems are the result of mixing two reasons (cheap and high quality, for example), because the underlying operational requirements of optimizing different reasons usually clash, creating inefficiency. A proper strategic focus will greatly increase your ability to create strategic alignment around one, good reason to be preferred by your customers.

Wednesday, February 21, 2007

Strategic Planning - the power of speed

This is the fifth in a series of short articles about how to get more out of your strategic planning.

5. Respond Faster

"Time is money". We've all heard that, right? But does your company operate that way? Many times, I've seen companies succeed wildly simply because they do things faster than their competitors - usually, a LOT faster. This works simply because all of us, as consumers, would prefer to have whatever we want whenever we want it. In many cases, we are prepared to pay a huge premium to someone who can save us just a little time - sometimes even paying this premium for a product or service on inferior quality.

How can you use this? First, in your strategic planning, you need to understand the time performance standards of your industry. Do 90% of your competitors turn around a customer order in a week? A day? An hour? Obviously, this can vary a lot, depending on the business you are in. But whatever that standard is, you need to ask the question "Are there many customers who would find it valuable to be served in half the time?". Usually - but not always - the answer is yes. In many cases, customers will be willing to pay a premium of 10-20% to get the same product or service in half the time.

Knowing that your customers will pay a premium for faster service is only half the battle. Naturally, you actually have to deliver on this - and make sure the customer knows you deliver. A simple time-flowchart can help you to identify where your customers' time is spent in your operation, and give you some ideas about how to cut that time down. This analysis should be done in the strategic issues section of the strategic planning process (page 5.2). Here are the top five time wasting places I've found in various industries over the years:

1. Credit approval
2. Waiting for engineering
3. Communicating the order slowly
4. Packaging for delivery
5. Waiting to be delivered

Granted, these are more applicable to products than services, but service examples tend to be very industry-centric (ie. an airline wastes time in different places from a restaurant). Anyway, try doing a little flowchart of your own operation and see if you can't find some treasure for your customers - chances are, they will be glad to pay you for it!

Tuesday, February 20, 2007

Strategic Planning - more power outside the box!

This is the fourth in a series of articles about how to get more power out of your strategic planning.

4. Think Outside the Box

Some people will point out that "think outside the box" is a lot like yesterday's tip - "be different" - and it is. But there is more to thinking outside the box than just being different. Perhaps the most important way your company can get outside the box is to focus on the actual need your are serving for your customers, rather than just your product or service. By "actual need", I mean the reason your customer is buying from you. For example, Harvard professor Ted Levitt liked to cite the case of a company that made drills - the need was the hole, not the drill. Far too often, we get hung up on the thing we do and completely miss what it does for our customers.

How can you use this? Stop for a moment and think about why your customers are buying from you. Then ask two follow-up questions: (1) Is there any other way this need could be met (besides buying what we sell)? and (2) Is there something we can add to what we sell - maybe a completely different product or service - that will enable us to meet our customer's needs even better than we do right now?

There's much more to thinking outside the box than thinking broadly about customer needs, but this is a good way to free yourself from the constraints of doing things the way you always have. Give it a try - you'll be glad you did!

Monday, February 19, 2007

Strategic Planning - the power of uniqueness

This is the third in a series of short articles about how to increase the power of your strategic planning

3. Be different

On the surface, it's obvious that you want your company to be different. But look at your company with a more objective eye - just how differently do your customers see you? One of the interesting things we've discovered from years of doing strategic planning with companies in many different industries is that being truly different is usually more important than being better. This is because everyone claims to be better - but few companies have the courage to be truly different.

Using the strategic competency tools in the Simplified Strategic Planning process, you should be able to identify some ways that you can distinguish your company from the competition. My challenge to you is to ask this simple question: What would happen if we turned this up a notch? Or even, how far could we turn this up? Can we expand upon our difference to the point that our competitors simply walk away, shaking their heads? I always like to ask this question, because - and this is the important part - if you can get your competitors to walk away, then you will not have any competition.

Sunday, February 18, 2007

Strategic Planning - the power of focus

This is the second in a series of short articles about how to increase the power of your strategic planning

2. Get More Focus

This approach should be in every strategic planner's toolbox, but many planners avoid it because there are some very difficult trade-offs involved. It is simply impossible for even the biggest, richest company to be all things to all people. Despite this, I constantly encounter companies who want "one stop shopping" to be their strategic competency. Now, one stop shopping can be a nice competitive advantage IF you have the resources, and IF you know who your customers are very well, but many companies pursue this approach long before either of those is true.

Why is focus so important? Look at it this way: if you spend all of your time and money trying to develop a reputation for great service in five different industries, don't you think you might get beaten by a company that spends the same amount on just ONE industry? Yes, you have the other four industries to fall back on (and I can hear the "don't put all your eggs in one basket" crowd shouting this), BUT...chances are you will run up against a focused strategy in EVERY market, eventually, because it WORKS! can you get more focus? One simple approach is to make a list of your five least favorite customers and ask why you don't like them...or maybe, why they don't like you. This is always a useful exercise, and often yields some surprising answers. But more importantly, I strongly suggest you go through the Strategic Competency exercises in the Simplified Strategic Planning process (on pages 3.2 and 5.2)...and use that compenteny to define your focus. You'll be glad you did.

Saturday, February 17, 2007

Strategic Planning - the power of discipline

This is the first of a series of short posts on how to increase the power of your strategic plan.

1. Be Disciplined in Your Strategic Planning

This is a funny way to have more powerful strategies...and it's important in two different ways. First, you should have the discipline to create a strategic plan.
This means you have to take the time - even make the time - to sit down and write out exactly what your plan is. I've seen companies succeed without a formal strategic plan, but I've seen a lot more companies fail. One of the key things to do here is to set dates when you are going to get things done. In many companies, it helps to have an outside facilitator who will set and keep you to this schedule.

The second way you need to be disciplined is in actually following what you say in your plan. It does no one any good to, for example, say we are going to be focused on a given market, and then turn around and sell everything to everyone who shows up with money to spend. It's very, very powerful to mean what you say and say what you mean in your strategic planning, so be sure to think long and hard about anything that may be an obstacle to that. If you don't, your plans will lack credibility, and ultimately, it will be very difficult to get people to support your strategic vision. If you do follow through on what is in your plan, however, people will see a winner - and enthusiastically support the next thing you plan.

Friday, February 16, 2007

Strategic Planning - making a funky schedule work

Often, I'm called by someone who wants to get their strategic planning done in a two to three-day meeting. This reflects a disease in the world of strategic planning that I call "retreat-itis" - the illusion that a proper strategic plan can be created in one sitting by the management team. The most common issue with doing this kind of schedule is that the team has no chance to research their data and assumptions used in strategy formulation - leading to a poor foundation for decision making. In addition, on the implementation planning, there is no opportunity to check on resource requirements or schedules, and so the implementation plans are unrealistic, at best.

So, how can we make this work? First, if possible, I ask the team to do the best job they can filling out the worksheets in sections 1, 2 and 4 of the Simplified Strategic Planning manual before the "retreat". This gives us a base of researched and considered data to work from. It's not ideal, because I haven't really given the team good instructions on how to use the worksheets, but it's better than nothing. The real sticking point for most teams here will be market segmentation, so I sometimes do a simple segmentation for them on the phone.

The second thing I do to adapt to this is to tell the team that implementation planning won't be a part of this process - it simply can't be fit in to a 2 day retreat. If the client insists, we can try to do it in a 3 day retreat, but I warn the client that we will be missing some key data, and that I usually allow weeks of preparation for the implementation planning.

As I said, this isn't ideal, but the next time you have to do a quickie strategic plan, you can at least get the company a little closer to the results of the standard schedule outlined in our Simplified Strategic Planning course.

Thursday, February 15, 2007

Money Loves Speed!

I just noticed a short bit in Terry Brock's excellent Achieve Your Success blog, in which he quotes Andrew Palmer, saying "Money Loves Speed". This is so true, especially in marketing, but equally in other facets of business.

The reason for this is twofold: first, speed assures that there is a tighter feedback loop between planning and execution (think shooting the rapids vs. drifting lazily down a river). Second, speed reduces the "t" component in time value of money calculations - and since those express value as (1+r) raised to the power of t, you get a geometric payback!

I've been using this recently by tightening up the timing of my marketing cycle for our Simplified Strategic Planning seminars...we used to begin advertising analysis nearly two years from the date of the program, and we are constantly looking to shave days off of the cycle. Web marketing is one of the best "fast cycle: marketing approaches you can use - because you can usually assess a campaign in a matter of days rather than weeks.

New Strategic Planning Exercise - Refining Your Strategic Competencies

One of the most exciting strategic planning concepts developed in the past ten years is strategic competency. While this term is probably over-used and mis-used, it is a very powerful tool when used properly. Remember that a strategic competency is a combination of skills, processes and knowledge that creates significant value for your customers and differentiates you from your competition. I have yet to see an example of a company that has been wildly successful using more than one strategic competency. That's right, you only get one, so choose wisely.

Some decent, well-known examples of strategic competencies are Disney (family entertainment), Honda (small engines) and Starbucks (high-end coffee experience). If you'd like to hear more about this concept, please refer to Simplified Strategic Planning or comment here, and I'll post more.

A client I've worked with for some time wanted to create a more focused strategic competency than the one they have been using for two years.

Rising to this challenge, I asked the team to think of 3 different types of customers:

1. A customer who loves us and would never leave for a competitor
2. A customer who has left us for a competitor and come back
3. A customer we would be better off losing to a competitor

I then asked : Why do the customers in 1 and 2 love us? What is their main reason for preferring us? What to they tell us about ourselves?

Following this, I also asked the team to think about what customer 3 was really looking for that doesn't mesh with who we are.

I expected answers to be all over the map. I was astonished at how consistently the answers reflected the value of the personal relationships that customers have with this client.
If you have already figured out a strategic competency but are uncomfortable with it for any reason, I strongly recommend you add this exercise to your strategic planning - you may find that it really helps refine the competency to something much more unique and valuable!

I'd love to hear from anyone who is using strategic competency as a central part of their strategic planning process also - both failures and successes are grist for the mill of learning, so please share!

Wednesday, February 14, 2007

Strategic Planning: The Easy Way to Innovate is - the Hard Way!

People, quite naturally, prefer to do easy things. Easy things are — well, easy. It often seems, when we look at our businesses, that the more things we can make easy, the more profitable the company will be. To a point, this is true. If you are putting more effort than you need to into creating your product or service, the time and effort involved may well be coming right out of your bottom line. Recognizing this, most managers will put plenty of effort into taking effort out of your processes.

But wait — there's a catch. Management is not just about minimizing cost — it's also about maximizing value. Some of the effort involved in your business creates tremendous value for your customers, and chances are you aren't even sure where the greatest value lies.

When companies set out to innovate strategically, they often rush off in the same direction as everyone else. In many industries — especially high-tech industries — this causes markets to mature very quickly as unique specialty items that took tremendous R&D investment become "me-too" commodities. If the innovation is a compelling one that creates real, preferred value for the customer, this commoditization is almost inevitable. The only place this is unlikely to occur is when your competitors — for whatever reason — do not copy your valuable idea.

Let's look at an example of this. For the past several years, AMD and Intel have been slugging it out over the microprocessor market. Intel, with deep pockets and first-mover advantage, decided to define the game in terms of core microprocessor clock speed. This is why, when you buy a computer, you are told that a 2.8 Ghz CPU is better than a 1.5 Ghz CPU. Superficially, this is absolutely true — the faster clock speed on the CPU makes it process program instructions faster. For some time, AMD made the mistake of playing the game as defined by their competitor (almost always a bad move). Recently, however, AMD has departed from classifying their products by clock speed (which is what Intel still does). AMD now wants users to evaluate their products by effective speed rather than clock speed — and, of course, they have helped to create the means for customers to measure effective speed. This is an interesting twist in the history of CPU innovation, because today, AMD chips with slower clock speeds are being pitched against Intel chips based upon testing that is purported to depict the real-life speed of a computer using that chip. There is tremendous debate about the testing of system speeds in the technical press today, which means — to some extent — AMD has moved the game of innovation into the realm of measured effectiveness for the customer, and away from CPU clock speed. Customers, of course, will benefit from this move towards real-world comparisons and away from slavish pursuit of the gigahertz — and AMD is hoping that it has the know-how to keep up with Intel in the redefined race. For us, the most interesting part of this is that we are seeing two excellent competitors investing heavily in markedly different paths of innovation for the very same product.

The concept that competitors might not copy something that is strategically valuable seems absurd on its face. After all, why wouldn't you copy a product that enables a competitor to gain valuable market share, often at higher margins? There are three main reasons why competitors do not copy innovations:

  1. They are unable to copy the innovation
  2. They choose not to copy the innovation
  3. They are prevented from copying the innovation

There is one other situation that occurs frequently, and that is:

  1. The competitor copies the innovation weakly because they fail to focus

If your company is seeking ways to innovate, each of these reasons may offer ways to avoid competition and earn a substantial return on your innovations. By understanding each of these, you may be able to identify useful types of innovation that will give you a leg up in the marketplace.

First — and this is one of the best — competitors sometimes are simply unable to copy a new product or service. The reason this is a very good situation should be clear — if you do something valuable for your customers that your competition cannot copy, you have created something that looks an awful lot like a strategic competency, which we all know is practically a license to print money. Unfortunately, this situation is less common than we would like to think. Additionally, we may embark upon a project expecting that our competitors will be unable to copy us only to find out, much to our disappointment, that this is not true. The worst thing about such a disappointment is that it is likely to turn up only after we have spent strategically significant amounts of time and money. However, if you want to avoid this disappointment, there is a key choice you must tend towards in your strategic decision-making: you need to focus your efforts on the hard stuff. The reason that difficulty becomes strategically attractive here is that it increases the likelihood that our competitors, in fact, cannot copy our innovations.

What are the things that will make a competitor completely unable to copy an innovation? In general, these will be technical issues — issues of know-how and capability, quite distinct from intellectual property issues, which are properly dealt with below. Let's take a look at issues that will completely prevent competitors from pursuing an innovation:

  1. The competitor does not understand the innovation
  2. The competitor does not have the correct equipment or people
  3. The competitor cannot afford the investment
  4. There is a trick to the innovation that the competitor cannot copy

The first three of these can be related to the others, and — to some extent — they all boil down to resources. With deep pockets, most deficiencies in capability can be eliminated. This is not always the case with the first issue, however — if you don't understand the innovation, you may end up investing in equipment and people that are inappropriate for success with the innovation. It is possible, however, for an intelligent competitor to invest in (1) — understanding, so this is not insurmountable. It is also possible for a competitor to correct (2), by spending to get the right people and the right equipment. The last two issues may be insurmountable. If investment is required, and a competitor cannot get the required capital, that competitor is, for most purposes, shut out of the market.

The fourth issue — the clever trick — is the dream of most entrepreneurs. If there is a clever trick involved, you can maintain a monopoly on the innovation almost indefinitely, or at least until your competitors figure out a way to steal the secret from you. A good example of this was the formula for gunpowder, which was a closely guarded secret for the first decade or so of its use in Europe. Everyone could tell that charcoal and sulfur were involved, but the use of saltpeter, and its proportion in the mix was a secret that took years to leak out, effectively giving the monks who discovered it a monopoly on its manufacture. Thus, while Roger Bacon is credited with the European innovation in the 13th century, the first European use of guns in warfare was not noted until nearly 100 years later.

The second reason why competitors may not copy us is that they choose not to copy. Why would this happen? Basically, competitors are likely to decide against copying good ideas when they think that either (1) the cost is too high, (2) the payoff is too small or (3) they just don't like the idea. Historically, many companies have used high cost as a barrier to entry, and this can work very well if you have deep pockets and your competitors do not. Small perceived payoffs can be just as good a barrier to entry, but it requires that you know something that your competitors don't. And dislike for an idea can also be a powerful barrier to entry. Let's examine how a competitor might reach the conclusion that they should not copy an idea.

First, the cost being too high: naturally, the cost might actually be too high, but this is one we don't want to use, because it would hurt us, too. Much preferred would be that the competitor's perceived cost is too high, while our actual cost is not. There are two key ways to hit this mark: one, choose innovation projects that appear to be expensive at first — and turn out not to be, or two, choose projects where you have some actual cost advantage in the innovation process. Both of these options require that you know a great deal about your product, service or processes — companies that are just dabbling will not likely succeed in either. In addition, the case where there is a real cost barrier to entry can be quite powerful if you have deep pockets and your competitors do not.

The second reason a competitor might decide not to copy your strategic innovation is that they perceive the payoff as being too low. If the actual payoff is low, this is not a very good situation to get into. In some cases, however, the perceived payoff may be much lower than the actual payoff. Some industries are perceived as dull and unrewarding. If you can gain entry into such a business, the perception of low payoff will help you almost as much as if it was real.

You will also find some cases where the low payoff is a reality for the second player in a market. This is often true with simple innovations that create strong brand preference. For example, Domino's Pizza gained tremendous leverage from being the first nationwide pizza chain to advertise delivery. The players that followed them had all of the expense of building a delivery capability, but none of the brand preference that Domino's generated during the years when "Domino's Pizza Delivers" was a distinction.

The final reason a competitor may decide against copying you is one of my favorites. Sometimes, a competitor just doesn't like the direction you are going. The beauty of this is that your competitors effectively leave you with a monopoly by making this choice. This can come about because people have had bad experiences with some kinds of business, or simply because of a gut reaction. For example, after the collapse of the bubble in 2001, many people assumed that all internet business was inherently unprofitable. This has created an opening for innovators who have developed new models of profitability for internet companies who would have been crowded out during the boom years of heavy internet investing.

The third reason why competitors may not copy us is that they are prevented from copying by someone else. Usually, this is a legal situation (as in the case of a technology covered by patents), but it may be driven by other forces as well. While many companies rely on this tactic in support of their strategic dominance, it has one major flaw: the prevention that makes this tactic effective is outside of your control, and may only be temporary in nature. The very best use for this tactic is to give you a head start on the next innovation, since — at some point — it may be possible to get so far ahead of your competition that they effectively give up on the direction you have taken. Some of the more interesting examples of this kind of prevention lie outside of the classic cases, where there is legal protection of intellectual property. These often occur because of pressure — real or imagined — brought to bear by customers of your competitors. For example, you may sell your products through distributors who are adamantly opposed to direct sales by their suppliers. In such a case, an innovator who starts selling directly to customers ends up taking a risk that competing companies are unwilling to take — the risk of cutting off the distribution channel that makes up most of their sales. In this situation, it is the customer who is preventing the copying — but the results are nearly the same as if you had a patent on direct sales.

So, what can we do to take advantage of understanding the difficulties of copying innovations? Simply put, we must throw as many of these obstacles in the way of our competitors as we can. The chart below is a basic outline of ways to take advantage of these ideas.

Innovation is a great way to differentiate your company and attain higher than average profitability in your business. Too many companies get on an innovation treadmill by improving their offerings in predictable, copyable ways. With a little care, you can innovate strategically, and truly put your company in a position that yields long-term advantage in the marketplace.

Robert Bradford is President of Center for Simplified Strategic Planning, Inc. He can be reached via e-mail at

Center for Simplified Strategic Planning has prepared a new book Elements of Innovation: How to Achieve Innovation in Mid-Sizeand Smaller Companies how to handle the issues of innovation. This is the perfect book for you if you want to:

  1. Increase the "innovation quotient" of your management team
  2. Stimulate creative thinking
  3. Create a company culture that fosters innovation
  4. Get more employees searching for new ways to create value
  5. Get a measurable return on you innovation investment
  6. Inject innovation in to your strategic planning
  7. Establish an ongoing process for commercializing ideas
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Monday, February 12, 2007

Strategic Planning and IT

In many companies, IT can be the wonder weapon of strategic superiority, enabling the forward-thinking company to leave its competitors bleeding in the dust. Just as often, however, IT can be far less than strategic in its impact, and, in the worst case, hamper the strategy of an otherwise well-oiled machine of a company. Mike Shaffner, in his "Beyond Blinking Lights" blog, looks at the problem of "being more strategic" from the IT manager's point of view.

I certainly recommend reading this, if you are in IT, or if your company uses IT as a strategic asset.


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Where customers come from...

First, for anyone who has been reading my old strategic planning blog, welcome back. I intend to post to this blog a bit more often, usually with insights from my work as a strategic planning speaker and consultant. I welcome any comments or questions, especially those which might inspire me to write useful responses that will help you get better results from your strategic planning.

This week, I'd like you to think about the results from a market data analysis I did for a local business that had a store on Main Street in Ann Arbor. I think the data shows a LOT about how consumers think, in many many markets. We simply asked customers how they decided to come into the store. Here is a breakdown of the answers:

wWord of Mouth! 46%
wRepeat! 28%
wEmployees! 18%
wLocation: 14%
wAdvertising: 10%

And where do most of us spend our time and money? This particular business, like many, spent the most time and money on the bottom three items. Now...I would say that spending time and money on GOOD employees ALWAYS pays off in the long run, so I'm not going to quibble with that. much thought have you put into how you generate word of mouth and repeat business lately?

For more strategic planning info, please be sure to visit my website!