What is the best strategy for retailers?

There just doesn't seem to be a retail strategy that works these days.  If you've been watching the news lately, you've probably come to the conclusion that brick-and-mortar retailing is sick, if not dying.  Just check out this article:  "Everything must go".  But is this the end for retailers?  Is there any way forward?

Let's examine what looks like the biggest issue:  online sales are still growing, at the expense of traditional retail.  You don't have to be an expert in consumer behavior to understand why.  There are compelling reasons for consumers to prefer making their purchases online.  I call these the Four C's of Online Advantage:

1.  Cost - Online stores tend to be cheaper.  Without the expenses (labor and real estate) associated with brick-and-mortar, online stores can profitably offer products at lower prices.

2.  Choice - Online stores can offer a broader inventory.  Low turnover products are more practical when your traffic is virtual and you may not even have to own or store your inventory.

3.  Convenience - Bad snowstorm?  Don't feel like fighting traffic?  You can shop online without leaving your bed.

4.  Customization - Online stores get more data about shoppers more quickly and cheaply than brick-and-mortar stores.  This one is a hidden weapon, and a powerful one.  Even the smallest online retailer has better data about why traffic comes to their store and much easier means of reaching out to past customers.

With just these four advantages, brick-an-mortar retail looks like a bad bet.  Is there any way to beat these odds?  First, you have to accept a basic idea in strategy for consumer markets:  you cannot win fighting against what the customer wants.  If customers prefer the cost, choice, convenience and customization, they will prefer online.  Strategically, you can attempt to match these advantages, but you will be matching your weakness to the strength of online shopping.  This is not to say that you shouldn't try to be competitive in these areas, but rather that attempting to be equal will cost you more than it is worth.

So what are the advantages brick-and-mortar can bring to the battle?  There are several tremendous advantages you should be using in your retail business.

1.  Experience - No matter how great a website or shopping app is, it is simple not physical presence.  Customers can only see and perhaps hear a website.  In brick-and-mortar, customers can also feel, touch, smell, taste and physically interact with your store, products and people.

2.  Immediacy - Customers can walk into a brick-and-mortar store and walk out with a product in a matter of minutes.  Even the best online distribution systems can't perform that well for physical products. 

3.  Social contact - brick-and-mortar stores enable customers to interact with staff and each other.  In some cases, there is a social life centered around traditional retail that is hard to replicate online.  In all cases, customers get to conduct transactions with human beings, which is a preferred mode for some purchases.

4.  Distribution - in some markets, such as fresh produce, delivering the right product to the customer at the right time is a very difficult challenge.  Online distribution systems, especially the last leg from the retailer to the customer, face great difficulty delivering such products efficiently.

These four areas make up the basic reasons why some customers will always prefer brick-and-mortar for certain transactions.  By implication, there are some retail experiences that may always be local rather than online - farmers markets, bars and fitness centers, to name a few.

But what if you are in one of the retail markets that is more prone to online shopping?  The strategic options for those retailers become much more difficult.  Basically, to compete effectively with online retail, a brick-and-mortar store must deliver greater value from its advantages than it loses to disadvantages for each customer it seeks to win.  Mathematically, traditional retailers cannot win every contested customer, but they must win enough of those customers to create sustainable turnover.  Here are a few options that make sense:

1.  Give up the commodity customer - some customers will always seek the cheapest source, no matter what.  In many markets, these are simply not the right customer for brick-and-mortar.  The cost of getting these customers in the door far exceeds the margin you can make from them long term. 

2.  Make the store an experience - if the store is enjoyable, some customers may prefer the sensory stimulation and social experience.

3.  Put more social in the store - I am not referring to social networking, which may help, but rather making the store a focal point for the community it serves.  A store that facilitates community will be preferred by some customers.

4.  Emphasize the immediate interaction - a store that delivers value because the last leg of the transaction is nearly instantaneous gains a big advantage over online competition.

Examining these four ideas suggests that certain models of brick-and-mortar retail are going to be more successful than others.  Commodity strategies, such as those commonly seen in big box retail, will be more challenged than the strategies of niche stores.  Customers will not look favorably upon a bland, impersonal warehouse filled with products if they can get a better deal with wider selection online.  They will also not abide ill-trained and uncaring retail staff, since an impersonal transaction can be done much more efficiently online.

The road ahead for brick-and-mortar retail is not easy.  Some costs may go up, while many will feel tremendous pricing pressure from online competitors.  A clear strategy that targets and caters to a specific group of customers is required to succeed in the changing retail world.  Any retailer who fails at this is doomed - but those who succeed will find a strong long-term position in their markets.  Strategic planning is the key to finding this success.

What you mean vs. what you say in your strategic plan

Sometimes, in the strategic planning process, I encounter a situation where someone in the team - often the CEO - says "That's what we want, but we don't want to put that in our strategic plan".  This makes me cringe.  Your strategic plan is intended to be a clear, concise statement of where your organization is going.  There are two possible uses for a blatant omission in your plan - 1) You want to mislead your competition and 2) You want to mislead your customers, stockholders, employees or suppliers.  I could think of a case or two where the first use MIGHT be sanctioned - but, to me, this is also a big warning sign that we are putting tactics in our plan rather than strategies.  The second use is almost certain to backfire - even more today than, say, 10 years ago.  People HATE being misled, and to do so in your strategic plan is about the worst place I can think of to do it.
So...take a look at your strategic plan.  Is the truth in there, or does it contain elements you added strictly for PR purposes?  Why would you be willing to pay the price for something like this?

Would you prefer sales growth or profit growth?

Often, before I work with a company on strategic planning, I ask the owner or CEO what success would look like for him or her.  This simple question has been the source of some great soul-searching over the years.  One of my earliest clients answered – very quickly – that he wanted sales growth.  We created a plan that delivered that, and then some.  The company nearly doubled in size in a short period of time, but the next time we did strategic planning, the owner told me he wanted more profit – even if it meant slowing down growth.  This is not unusual – and many people try to pretend that there isn’t a trade-off.  While it is true that both profit AND sales growth are possible simultaneously, it is much, much more likely that you will experience one or the other.

Here is why most companies experience either sales growth or profit growth:  customers aren’t particularly interested in either of these things for you.  Customers want the best deal on the best products and the best services with the most features and the most convenience.  Try to do all those things at once, and you are going to lose money – unless you have a magic recipe somewhere (and granted, it’s possible, but much more rare than most gurus would have you think).  So…we can sell MORE to customers if we give up a little – or we can sell LESS and make more money.  Your competitors have the same deal going on – some may have special know-how that enables them to wiggle about a bit in this equation, but every company runs into this wall, sooner or later. 

A few years back, I analyzed the results of dozens of companies that I’ve worked with, and this tendency became very clear:  the top performers in sales volume growth were in the bottom quartile in profit growth, and vice-versa.  I find this result a little surprising:  most of us assume that overhead absorbtion creates an economy of scale as you get larger.  The problem with this assumption is that size attracts – you guessed it – competition, and so there is a higher need for investment and the overhead that comes along with it as you get bigger.  In other words, for most companies, there is no magic size you can reach where you are not going to be beset by competition.  If you don’t believe me, take a look at companies like Apple and Exxon-Mobil.  They make great money, and they are huge, but they have to invest heavily to maintain their position because a big company is essentially a HUGE target for competition.

So here is a question for you – would you like to see super high growth in sales or profits – or would you be happy with mid-range numbers in both?  If you can make a clear, focused choice, you will be far ahead of your competitors.

Are you REALLY doing strategic planning?

Do you think your company is doing strategic planning?  Many people do - but strategic planning is more than just an annual vague discussion about your business.  Real strategic planning can be characterized by three things:  SUBJECT, FOCUS and EXECUTION.
Subject is what you are really talking about when you are doing strategic planning.  As I said in my books, there are three questions that we ask in strategy - and if the subject isn't about one of these three questions, you aren't being strategic.  The questions are: 

1. What do we do?
2. For whom do we do it?
3. How do we beat (or better, avoid) competition?

Remember - if it doesn't address one of these questions, it's not strategic.
Focus is not, as most assume, about what you are going to do.  That's too easy.  Focus is about what you WON'T do.  With proper focus, you can tell the world who you are and they will look to you to deliver on the things that make  you outstanding.  The hard part is giving up the things you are NOT focusing on.  Strategic planning is not about what you should do, want to do or could do - it is about what you must do to succeed in a focused target area.
Execution is actually doing what you plan to do.  It's easy to say "we will go here and do this" - it's another thing entirely to DO it.  If you put little or not effort into your execution, you may have great strategy, but you will have disappointing results.
Does your organization do all of these things well in strategic planning?  Which of the three do you find the biggest challenge?

Video - How to Set and Reach Your Objectives

As a strategic planning speaker I am often asked "How can I implement my strategic plan?"  The short video on this page explains several key parts of the process, based upon 25 years of successful execution of plans in a variety of industries.

http://www.strategyspeakers.com/robert_bradford.php

What is strategic planning?

Strategic planning is something many people think they know because they have seen it done badly.  Strategic planning is NOT:

-SWOT analysis
-A list of objectives
-A book prepared for your board of directors
-Budgeting
-A nice looking document that no one looks at after completion
-A balanced scorecard
-A mission statement

Strategic planning is a process of setting the course and direction for an organization or other endeavor.  A well done strategic plan focuses the resources of the endeavor on those activities which will yield the best results.  For businesses, this means optimizing profitability, survive-ability and growth-ability.  

The best way to assess the quality of a strategic plan is to ask these questions:

-What did you do as a result of the plan?
-What difference did it make for your organization?

Considering the answers to these questions, how would you improve YOUR strategic planning?

Upstream and Downstream

One of the overlooked ways to improve your strategic planning is by thinking about how your organization fits into the bigger picture.  An excellent exercise in strategic thinking is to take a minute and think about why you are important both upstream and downstream in the value chain.  In other words, what makes you important to your suppliers, and what makes you important to your customers.
I like to closely examine any ideas this may spark about win-win activities that might involve the upstream or downstream players.  A good example would be a social networking site which encourages you to invite friends - you are helping them by growing their network, and helping yourself by expanding the network you can draw upon within that site.  This particular win-win activity goes a long way to explain the rapid growth of social networks as both a business and recreational tool.
Question to ask in your strategic planning:  What activities might you encourage that create a similar win-win situation for your upstream and downstream stakeholders?

Starting the year right

One of the best ways to assure your company has a good year is to have a concrete, documented strategic planning process.  Ideally, your strategic planning should occur during a time when it will have less impact on your routine operations, but the key point is that you actually schedule and hold strategic planning meetings.  To minimize conflict and schedule issues, it's also a good idea to plan your meetings one or two months in advance, and possible even longer if your team has difficult travel schedules.  I've found that you will get a lot more out of your team if you hold your planning meeting off-site and work with a professional strategic planner who is not going to try to use the process to sell you other consulting.  If you can afford to get your team out of town to a nice destination, it is definitely worth the effort, as your team will look forward to the process and view strategic planning as something to look forward to.  Start your year off well by scheduling your strategic planning this week!

What does a "Real" Strategic Plan look like?

Strategic planning is something many executives think they know all about.  In the past few months, I have hear a couple of CEOs comment on what a "real" strategic plan should look like.  These comments, sadly, show a lot of bad misconceptions about what a strategic plan is.  Here are some common misconceptions:
1.  A "real" strategic plan is verbose.
Or long.  Or written out like an article or a book.  This is one of the most common errors - and one of the stupidest.  Think about the last time you REALLY planned something.  Did you write an article?  No.  You probably wrote yourself a checklist.  Why?  Because that's how we get things done.  When was the last time you picked up a wordy article and said to yourself "Wow, I have to do this..."?
2.  A "real" strategic plan is overloaded with details and financial targets.
This is a sneaky one.  When people put lots of numbers in a strategic plan, it creates the illusion that they have a better plan.  But think about this - what do you REALLY know about those numbers?  Where did they come from?  I have seen companies with very, very detailed financial plans get in trouble because they focus more attention on their predictions than on the underlying strategic realities.  Strategic plans exist in the real world, where sales forecasts are almost always wrong and any number you predict in the future is highly suspect.  Instead of putting all that work into quantifying the unquantifiable, perhaps you should spend a little more time on realistic systems thinking about the nature of your industry, and how it is likely to change in the next few years.  Making your assumption a number will not make it a fact.
3.  A "real" strategic plan is insanely short.
I like some of the thinking behind this one.  Making your plan short does force you to focus on the reality behind your planning.  But just as one can put too much detail into a plan, you can also put in too little.  An effective strategic plan has enough detail to be useful, but not so much that it gets in the way of understanding - AND ACTING ON - your strategic thinking.
4.  A "real" strategic plan doesn't have implementation steps.
If all you want from a plan is a pretty document. bless your heart.  If, like most executives I work with, you actually want RESULTS from your strategic planning, you must have some detail and accountability on the implementation of your strategies.  If you don't, your plan will be - at best - a very clever documentation of your thinking, rather than a tool to get results.
Have you encountered any of these errors?  Does your company's strategic plan show signs of them?  Using the Simplified Strategic Planning process can greatly improve the usability and effectiveness of your plan.  Be sure to check out our popular and long-running seminar series (https://www.cssp.com/seminars) for detailed, step-by-step instructions on how to create a strategic plan that truly delivers results.

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?

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.

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?

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.

Strategic Planning: The "disappearing middle" of the job market

A common question in strategic planning revolves around the strong profitability of clear, focused specialty and commodity strategies. Apparently, this is becoming a factor in the labor market, as well.
An article in The Lookout on Yahoo notes that there is a "disappearing middle" in the job market. This trend - growth in lower-tier unskilled jobs and upper-tier skilled jobs, looks suspiciously like the "saddle curve" we use to explain the profit impact of pursuing specialty and commodity strategies. Is is possible that the labor market is now coming to reflect the same specialty and commodity tendencies we have observed in other markets? An interesting question is: why has this tendency not been apparent in the past? Strategically, you should ask yourself: is my company employing specialty employees or commodity employees - and how does that fit with our strategic planning?

Help! I can't get my team thinking strategically!

This is a cry for help I get a few times a year. Fortunately, I'm good at fixing this problem. Of course, you are wondering how.
Here are four simple tips for getting a team to think more strategically:

1. Force thinking to the future. The more distant future brings up questions about the survival of the industry, not just your company.

2. Ask why we exist. Not how are we going to exist, but why.

3. Use strategic imagery. Don't talk about swimming faster - talk about swimming in the right direction.

4. Challenge the team to make their own luck. Get them thinking about how to get your company doing the right thing, in the right place, at the right time.

5. Every time someone suggests a tactical solution, respond negatively: "That's only going to make us a little more successful next year. I want something bigger".

If these don't work - or if they do, for that matter - you should seriously consider bringing in a professional who focuses on challenging teams to think more strategically. Drop me a line and I'll tell you how to get me to come do it in person.

Strategic Planning: Why Wal-Mart is a bad place to buy books

A recent article on Yahoo Finance got me thinking about a fascinating strategic planning question: why is Wal-Mart is a great place to buy some things (such as video game consoles) and a terrible place to buy books?

Wal-Mart wants to turn over its merchandise quickly, and prices hot items (like the Nintendo Wii) to sell quickly. When it comes to books, there is a serious problem in this. Wal-Mart has been having a price war with Amazon over best-selling titles. Fortunately for Amazon, Wal-Mart has to do this, because Wal-Mart would never win a value war with Amazon. Amazon has invested huge amounts in having millions of titles available - arguably, a better selection of books than any other source on the planet. Wal-Mart - true to their commodity strategy - only wants to sell huge quantities of the best-selling books. This means that Wal-Mart, at best, might carry one thousand titles, compared to Amazon's millions. This brings us to the classic reason to buy - or not buy - from Wal-Mart. Want a cheap price on a New York Times bestseller? Wal-Mart will probably have it, and they will try to price it less than Amazon. This is still a challenge, since Wal-Mart is still largely a bricks-and-mortar operation, but their advanced distribution and purchasing power enables them to give Amazon a run for it's money.

But let's look at the flip side: Want any one of a million titles - say, a book about fossil hunting in Florida? Wal-Mart will never carry such a title, because the turnover rate would be too poor. In fact, there are thousands of books in a typical Borders or Barnes and Noble that Wal-Mart wouldn't want to carry because they don't have the volume demand that, say, the latest Twilight book would have. This approach might make little difference to readers who only buy a book or two to take to the beach in the summer - which is a valid, addressable market that Wal-Mart already caters to - but it makes buying books at Wal-Mart about the same as buying clothing at a convenience store. Sure, you might find what you are looking for, but you'll waste a lot less time going to a specialty retailer whose strategy is centered on giving you the selection you want. This is true whether you are talking about online sales or bricks-and-mortar sales: selection is both a cost and a consumer preference in the book market (and arguably, the fashion market and many others).

Wal-Mart can succeed by sacrificing the preference for selection because price is also a strong preference. For retailers like Amazon, however, the strategy of leaning into Wal-Mart's weakness (product selection) will always garner a sizeable chunk of market share. The challenge for even more specialty-oriented stores (small, independent booksellers, for example) is to provide other values that Amazon (or Waldenbooks) won't, such as personal service, focused selection, ambiance, and browsing configurations.

I'd go a step beyond this and say that people who buy books at Wal-Mart are also doing society a disservice, because civilization suffers when economic resources are diverted only to cultural production that sells in mass quantities, but that's a somewhat elitist viewpoint. Still, a culture that only supports best-sellers isn't just bland, it is systematically likely to sink to the lowest common denominator in literature. Call me a snob, but I'd prefer not to build a civilization on Harlequin romances.

How about your business? Are you like a Wal-Mart, an Amazon, or a small independent bookstore? How do you create value for your customers? Does your strategic planning give you the ability to out-serve your biggest competitors in a huge portion of your market?

The State of the Art

Despite what people might tell you, strategic planning is an art. As with other arts, you can do better with good training and tools, but at the end of the day, there is no replacement for skill and experience.

In times of economic turmoil - or even just turmoil in a specific industry - many companies turn away from their strategic planning to focus on short-term issues. In many cases this is warranted - your course may not be as important if the ship is sinking - but in far more cases, this departure can lead to bad strategy and failure.

One of the best (and to me, the most painful) examples of this departure from the path of good strategy occurred at Disney from 2001 to 2008. In the years before this - from 1991 to 2001 - Disney operated an excellent park at Disney World called Pleasure Island. This park filled in an important gap for both families and convention attendees in the area - the absence of nightlife for adults. While this fell outside the Disney strategic competency of family entertainment (viewed on its own), it was well within that competency when seen as a part of the bigger picture, answering the question "How can we keep the whole family happy during a week at Disney World?". Unlike any other place in the world, Pleasure Island offered (during its peak years) family oriented nightlife - a place where I wouldn't mind taking my young children to go dancing or take in a comedy show.

In 2001, the aftermath of 9/11 devastated the travel industry, and hit Disney hard. To overcome this, Pleasure Island management started targeting the local nightclub crowd, making changes to the operation that made it more appealing to young local people. This change may have decreased losses in 2001-2002, but it also decreased the family appeal of the attraction, and Pleasure Island started to fade as a part of the Disney destination as it became more of a local hang-out spot. As you might expect, the very non-family oriented problems of nightclubs - drugs, violence, gangs - also seemed to be increasing during this time. Attendance -especially by families and Disney vacation-goers- declined steadily as the Pleasure Island operation became less of a distinct entity and more of an imitation of Citywalk at Universal Studios nearby.

In 2008, the entire operation was shut down, to make room for more shops in the Downtown Disney area. Thus, a unique part of the strategic competency of Disney World suffered a strategic loss due to changes that were made for tactical reasons seven years before.

While the decisions involved in the decline of Pleasure Island may well have been made in strategic planning, there was a clear departure from strategic competency-based thinking for more tactical considerations of short-term revenue enhancement in 2001-2002. Small changes, like the cessation of fireworks and live shows, and big changes, like the removal of admission gates from the island entrance, led very directly to the decline and, ultimately, the failure of the operation.

Has your company departed from its strategy in the past year? Do you need to return to strategic competency-based planning to renew the true distinction that your company can have in the marketplace? Now would be a good time to consider returning to a discipline of formal strategic planning to assure success not just next year, but for years to come.

When Should You Get on the Bandwagon?

You have no doubt seen many of the indicators that the recession may soon be over (if it isn't already, a view held by some very smart economists). This doesn't mean everything will return to the rosy days of, say, 2006, but it does mean the economy will begin growing again. With this knowledge, you are probably thinking about when you should consider revving up the profit engine in your company. The timing of this can be a critical question in many industries.

As a general rule, you don't want to rev up too early, because you will increase your expenses to do so, and profitability will suffer as you spend on capacity that you do not need. On the other hand, you also don't want to rev up too late, because this could easily lead to a loss of market share as your inability to fill orders in the short term pulls you up short. A more difficult and probable effect of undercapacity is that parts of your distribution channel - and even individual customers - are likely to switch to competitors when you cannot meet their needs.

These two factors push against each other - the risk of increasing expenses too early tempers your desire to reduce the risk of losing market share in a recovery. Obviously, excellent forecasting - or at least close attention to real economic data - can be very valuable to you here. Beyond timing your return to expansion precisely, you should also assess the real risks of both scenarios. If you are pursuing commodity strategies, the cost of increasing costs too soon may be unbearable with your super-lean cost structure. On the other hand, a specialty strategy may lead you to see the cost issue as small compared to the risk of losing market share, especially when some market share loss may be permanent.

How should you handle this in your strategic planning? An objective look at your current financial model and market position should be a part of at least some of your monthly strategy implementation review meetings. Until we have passed the current economic inflection point, you will be well-served to look at the upside AND downside of both increasing costs and losing market share.

Strategic Planning - Better Business Models, part 2

Business models work because they work for customers – and coincidentally, for your company. Self-deception here can lead companies to optimistically adopt a business model that fails because it was designed for the supplying company rather than for the customer. Time and again, I see business models that are broken not because the starting point for their design is what the supplier wants – rather than what the customer wants. One of the key reasons that specialty and commodity strategies are more often successful when they are distinct from each other is that the concept of specialty and commodity limits suppliers to ONE facet of their own desires – and then subjects the business model to a wide range of the customer’s desires.

The quintessential example of failure on this point is one of the oldest ways to create a scam – sell someone on the idea that they can get lots of money, quickly, without special skills or hard work. Sometimes these scams are simple (the Nigerian 401 scam), while sometimes they are grand and complex (Bernie Madoff and Enron come to mind). The fundamental nature of free market capitalism – that it is an engine of creative destruction – means that ANY business model that requires little work, skill, risk or time will be destroyed as quickly as competitors figure it out. Incidentally, if you think through the implications of each of these advantages (little work, little skill, little risk and little time), it becomes quite clear that business models built on top of genuine strategic competency are the only ones that have a long-term chance of success.

Strategic Planning for Acquisitions - Team Composition

When you are evaluating an acquisition, who should be on your team? As a general rule, you should attempt to include anyone who has primary responsibility for an area affected by the acquisition. For example, if operations will be affected (and they almost always are), you will want to include the VP of Operations. Obviously, there are a few other areas that are always - or almost always - affected by an acquisition, which means that most (if not all) companies will also want the CEO, the CFO and the VP of Sales involved. If you have a VP of marketing with a strategic level of responsibility, he or she would also be a good addition to the team. In many companies, you will also want to consider including the heads of IT, Human Resources, and Technology/Engineering - depending on your industry, and the ability of the person in question to think strategically about the acquisition.

I'd be curious to hear if there are people you have included in acquisition teams in the past that aren't listed here. Do you have any experiences (good or bad) that might suggest ways you should consider team composition? Let me know!