Wednesday, May 04, 2011

Is Retail Strategy different from other strategy?

When I do public strategic planning programs for a broad audience, I am sometimes asked “Is strategic planning for a retail business different from strategic planning for a different kind of business, such as a manufacturer?” The answer, not surprisingly, is “yes AND no”. The differences and similarities may surprise you.

To begin with, the “product” of a retail store is different from most product and service creating businesses in that it is not part of a discrete transaction conducted with the customer – that is, as a retailer, you do not get a separate payment from your customer for the value you produce. Instead, you always (or almost always) make money on payments from your customers for goods and/or services produced by others. Of course, there are exceptions – for example, if you do food preparation on your premises, you are getting paid directly for that value – but in most cases, retailers make their money on the markup on the goods and/or services they are selling.

To put a finer point on this distinction, as a retailer you get some compensation from customers – largely for the experience you generate around their purchase – and some compensation from suppliers – largely for the infrastructure you provide for their distribution. How much compensation comes from either source is a tangled topic we can address elsewhere, but the point is, you make your money as a retailer by providing infrastructure and experience.

And here is one place where strategic planning for retailers is just like strategy done for anyone else: as a rule, the more easily a service/product can be measured and duplicated, the harder it is to sell it as a specialty. In retail, the value of infrastructure is exactly that – something that is easily measured and duplicated. This is not always so – a huge distribution network like Wal-Mart’s is hard to duplicate, and so is a highly specialized semi-monopoly network like Duty Free America. Still, for most suppliers, access to customers through one infrastructure network is pretty much the same as the others. For customers, however, the differences can be notable and – in the eye of the customer – worth quite a bit.

If you run a retail business, where do your stores stand? Do you sell an experience or infrastructure? How does your strategic competency add to your uniqueness and the value you create for your customers?

Wednesday, February 23, 2011

Strategic Vision at Apple: Will it change under Tim Cook?

As Steve Jobs' health becomes a greater concern at Apple, attention has been focused on Apple's number two exec, Tim Cook. This transition raises some questions that are interesting strategic planning issues, and will be a fascinating case study in business strategy over the next three or four years.

First, many credit Jobs' vision for the success of Apple. In some ways, this is not far off the mark - Jobs, especially after his return to Apple in 1998, pushed Apple in some weird directions that clearly distinguished the tech company from its competitors. Probably the best part of this strategy was an emphasis on design and a willingness to take a shot at unusual new products before it was clear consumers wanted to buy them.

The first item - emphasis on design - could arguably be Apple's strategic competency. Every successful Apple product has had a design that notably distinguishes it from competitors, and in most cases, the Apple product has re-defined its market.

The second item - a willingness to take risks on new products - lies at the heart of entrepreneurial success in any industry, and is only notable at Apple because size tends to extinguish this vital recklessness. The Fortune 500 is littered with companies that used to have this gambling mentality - but no longer do. Apple still has it, and one could argue this is because of Jobs.

Enter Tim Cook - a perennial number two, according to some, Cook has been seen as an operations guy - and a brilliant one with a keen mind. Operations, unlike design and marketing, does not often reward entrepreneurial recklessness, though - so will Cook bring a vision that can sustain Apple's weird status in the future? On the one hand, people who know Cook say he is a great strategic thinker. On the other hand, operational responsibilities can infect your mind with a gray practicality that deadens the innovative spirit of an organization. It's truly too soon to tell, but don't bet on Apple going dead in the water immediately. Cook knows he has a lot of very keen people around him who have been part of Apple's success over the past ten years - and he is smart enough to know how to work with them. Let's hope he doesn't try to "re-make" Apple in his image just to satisfy his ego - any sign of that would be the kiss of death, as it has been for countless other successful companies in transition.

Monday, February 07, 2011

Why Wal-Mart is not invincible

After a couple of years of news stories trumpeting the success of Wal-Mart (again), sales at Wal-Mart stores showed a decline last year. Why? There are two very different reasons. The first is economic, the second is competitive. The economic reason is that all shoppers shift spending downward when they see themselves affected by an economic downturn. This means people who shop at higher-end stores when times are good may stay pinching pennies by making the same purchases at a commodity store like Wal-Mart when things get tight. The competitive reason is that some of Wal-Mart's closest competitors - notably the dollar stores like Family Dollar and Dollar Tree - have started to close the gap on some of the weaknesses that caused customers to shift away from them and towards Wal-Mart. The first shift isn't really big news - commodity players always fare better when the economy is doing badly, and worse when things brighten up. But the second shift should be worrying to the folks at Wal-Mart. The commodity game, unlike a specialty strategy, allows only one winner. Any change that reduces volume for the lead player makes it that much more likely that an upstart will be able to remove the commodity crown from the top dog. Wal-Mart has undertaken some big expenses in the past few years that their smaller competitors have not - notably advertising and opening/closing stores. These are both strategic moves, and properly done may lead to higher profit at Wal-Mart - BUT improperly done, these moves may just be another chink in Wal-Mart's armor.
While I'm not a big fan of commodity strategies in general, so much has been made of Wal-Mart's management approach that I will find future developments in this market space very interesting to watch.
Here is a question for you in your strategic planning: Are YOU staying on top of your game? Are you considering pursuit of strategic moves that may create chinks in your armor? And how are you preparing yourself for a better 2011 and beyond?

Tuesday, January 18, 2011

Making things matter

A quick strategic planning observation: so many great profitable strategies work off of this one simple idea, I thought I'd share it with you. We live in a world where many of the frustrations we have come from people treating things as if they don't matter. If you can find something that matters to your customers that your competitors treat this way, you have a potential gold mine on your hands. In your strategic planning, make sure you ask yourself if you understand what matters to everyone in your profit system - your customers, your employees and your suppliers, most of all. If your business matters to those people, it's bound to succeed.