Strategy Myopia

Are you having an unsettling feeling of not gaining market shares or are you losing growth pace, despite heavily investing in marketing?

First; what does “Marketing” mean for you? Reading various definitions as “Marketing is the process of communicating the value of a product or service to customers or ”Communicating products or services in a multi-channel environment”, I’m confused about why we never learn.

Borg

The year was 1991, the place Monte Carlo. Björn Borg, the world famous tennis player; “Mr. Five-Wimbledons-in-a-row” and one of the best players in the tennis history, steps out onto the Centre Court for his comeback at the Tour. In his hand he held the wooden racket Donnay Borg Pro. When Borg won his fifth Wimbledon title in 1980, nobody questioned his choice of a wooden racket. In 1988, Donnay went bankrupt overtaken by its competitors. His antagonist, Jordi Arrese, was playing with a new material graphite racket, weighing 25% less.

Borg lost his comeback match and retired shortly afterwards.

A large enterprise developing and selling accounting systems for PC’s based in my hometown said in 2001, internet based accounting systems is just a fly and that people wouldn’t dare to put business critical accounting information on the net. The same year the Swedish company Fortnox also headquartered in my hometown introduced accounting systems as a web service paid per month. Today, Fortnox has 40,000 customers, each with several users.

Why?

As early as in the 60’s, Harvard Business Review published Marketing Myopia by Theodore Levitt. This article is one of my favorites all these years and I read it every now and then to get the right perspective when I’m feeling blinded by fantastic business ideas or products. The essence in the article is that we were, and in my perspective still are, so focused on our own products that we can’t see our customers’ needs or misinterpret them.

We are suffering badly from Strategy Myopia, defining our market too narrow. Levitt is discussing examples like train companies that in the 60’s narrowly defines themselves as being in the “Train Industry”, but should being in the “Transportation Industry”, and by that be able to catch new opportunities along the road when customer needs changes.

My recent examples from the tennis courts or accounting should also redefine their markets. Donnay was not lucky defining themselves as the market leader in Wooden Tennis rackets, while the large accounting system enterprise should redefine their market to be more like “Accounting Industry” or similar, not “PC and Mac” making it completely of no matter what platform the customer intend to go for. Why are they giving away 40,000 potential customers?

I think it’s because we are so tied up in our existing strategies, coming from myopia in marketing, sales, finance, R&D and supply chain.

On one side Marketing invests billions of dollars in campaigns explaining why people should buy your product and we are continuing asking our customers what they think about our product, followed by massive investments in R&D aiming only to fulfill the results in our own-defined questionnaires.

We train Sales reps learning key features, USP’s and selling techniques to convince buyers like what is supposed to fit into our templates. We go as far as creating KPI’s only to consolidate they only sell what they are told to. Why on earth would we have to convince buyers if they really need our product or service?

Further down the chain we configure our Supply chains to produce the products at increasingly lower costs, see Håkan Bernhardsson’s blog post Is your company customer driven?

This in turn, will even more cement our ambition to produce a larger number of them – and exactly those produced products, even if they aren’t compatible 100% of the customer needs. And above all, Finance controls that no risk is taken, cost is on an acceptable level and the sales forecasts are delivered timely and accurate on detailed article level.

The last thing we do is to put a huge wet blanket above our existing business model by delivering all necessary reports to the stock markets or owners and then we can’t change anything.

Sorry Stock Market. Five years later we may be bankrupt, like Donnay. They didn’t realize they should fulfill a core customer need – tennis rackets, or even just “rackets” if people intend to play more badminton instead in the future.

I certainly realize it’s not possible not to plan for a demand of an article or product area, invest in supply chains, R&D, train sales forces and let finance do the risk management. But we really need to look into how we can incorporate customer need in our strategies. The Marketing Myopia article was written by Theodore Levitt fifty – 50! – years ago. And still it’s easy to find examples of narrowly defined market strategies.

Just to be sure; start with the definitions. What is a “customer need”? Don’t misinterpret with “customer demand”, which I define as a demand for a certain product or service we already have defined by adding features or functions. A typical core customer need can be the ability to go downhill a skiing slope (containing all products providing just that – carving, snowboard, etc), windows (products letting light into spaces).

Even if your supply chain currently only can manufacture a certain type of, for example, wooden windows, make sure you look into the ability to produce plastic windows as well. How do you know it would not be a hit, in say, eight years? Why give away that market?

Incorporation of customer need means more than just gathering of knowledge. In a recent blog post Håkan Bernhardsson raises some thinkable comments about using Big Data. If your organization is not ready, it may be very risky business to lean on Big Data to get knowledge about core customer need. If you are ready, it may provide some valuable knowledge.

The real problem is instead your long-term strategy, your processes, your culture and your people. You need to drive change management from strategy to tactics, down to operational levels and processes. Aim long-term – five years or even longer horizon, but act agile. Take decisions, but use decision points; fixed dates when you have to take decisions, see my blog post about decision making in an agile world.

Early warnings comes with heavy marketing budgets, too rigid supply chains, upcoming competition, decreasing market shares, powerful R&D department and too much cost focus on existing product articles.

It’s not bad branding narrowly, but can you afford the risks doing only that? It’s one thing what you currently tell your customer, a completely different thing what you are preparing.

Best Regards,

Stefan

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Corporate Managers, Big Data can be the worst thing imaginable, right now…

I used to love the Buzz words; they were intriguing and held a promise of a quick and easy solution to a known pain, now I see a problem with them. Fab words and hype will always get precedence over what matters. It’s like the candy that witches use to lure unsuspecting children off the path in fairy tales, so they can be cooked in a big pot.

Big Data (Google statistics, social whatever, RFID, and so on…) is the promise of something new, something never before achieved. With these new fantastic methods and tools you will learn more than ever about your company and your customers than ever before. You will even be able to sway opinion before it has any negative impact on your brand. Marketing lists, customer categorization, trends, potential product development will be harvested and you can get virally spread product launches at the click of a button…In the words of Chrysta Anderson:

To remain competitive, all organizations need to analyze both internal and external data, as quickly and cost effectively as possible. As the world becomes more instrumented, with RFID tags, sensors and other sources, companies are creating more and more data. When paired with external data – like that generated by social media sites – there’s incredible opportunity that is largely untapped and unanalyzed

The pot that will cook you is the need for record investments in IT platforms, new databases, analytic tools, cloud solutions, new staff, consultants, and so on.

Sit down a minute and think about all of this. Finding how to put all of this in place is going to be as easy as catching a fly with chopsticks. In theory it can be done but it requires preparation and timing. There is no such thing as luck.

So you are still considering taking the plunge into big data? Are you really ready for it? I have already stepped into Mr. Miyagi’s world when mentioning the fly and the chopsticks so let’s look at Karate Kid to find the winning recipe for managing Big Data. To start with Mr. Miyagi had a plan a strategy, to teach the unsuspecting pupil the correct moves one by one in order to give him the strength and skill to use each separate momentum in combinations suited for the current defense or attack. Mr. Miyagi also built the most important component, trust. It was trust that was the glue that kept the training together and let it all merge into a karate champion. Mr. Miyagi also topped off Daniel-san with a secret weapon, a unique skill that no one else had and could not anticipate, “the Crane”. As I see it, if you have been the manager that has trained your staff in all the parts and built up the basics you are ready for Big Data as “The Crane” move for your business. If not, you are going to take a hard fall. Have you been a Mr. Miyagi for your company?

Why is there a big risk in Big Data without being prepared, “what can be the harm?” you might ask yourself. We will simply add more information for our departments and information is good, right? I can buy into parts of that argument, but I have worked with forecasting and how to collect and present data for a long time and I learned that more data does not in it self equal good quality. Yes, information is crucial in order to move business in the right direction, but consider this, if you give a thirsty man a sip of water you will quench his thirst, if you throw him in a pool he will surely drown. The rightt amount of information is good, too much information will distract your employees from seeing what is important. Unless you know that your organization is ready to tackle the Big Data monster, focus on what is truly important for your company.

Implementing Big Data to an unprepared organisation can cause more harm than good. More data is not equal to good quality.
Implementing Big Data to an unprepared organisation can cause more harm than good. More data is not equal to good quality.

Find your Mr. Miyagi strategy today and start working with it ASAP. Take in Big Data as one of the components down the road and define what it means and how it fits into the total picture. Next week you will probably hear of “The Swan” move or some other new distraction that you will also need to take in account, take that into your plan when the time comes as well if it has a place and so on…

I hope I just saved you from getting cooked.

Here’s a good article on the subject by one of my favourite authors Stephen Few.

Strategy is like climbing a mountain!

I read a blog in Harvard Business Review by Roger Martin about strategy or rather about companies that did not have a strategy and it still has me a bit upset. Perhaps it’s about the grey in life, now that I appreciate the grey I can also appreciate well written strategy. My first conclusion from the article was that these CEO’s have not yet reached a point in their lives that the grey matters; they lack experience to do so. Age does have its advantages.

To have a strategy or not is like a company having leadership vs a company beeing managed. Success comes from leadership…

My second conclusion was that there is a need for clairification, so I’ll try to do this. My mind works in pictures and to explain how I see strategy I will try and paint you one. A vision that comes to my mind is one I learned when planning projects, with a twist.

Mountain

It’s like climbing a mountain, but it’s a race. You need to start by taking a long hard look at the mountain, you assess the competence of your team and your competition and you need to decide how you want to tackle the mountain. Do I go up the right flank to 1500m and then move to the middle, take the glacier up to the next level and go back over to the right to make a tough climb to reach the top, or do I choose the left flank taking a long detour though deep snow with constant risk of avalanches? There are risks to consider in both cases, one may require more resources and equipment but the other requires new resources and uncertain outcomes.

The decision is taken and the teams sent off. Managers STAY ON THE GROUND at base camp, observing the movement and progress of the teams and the competitors. From this vantage point they can make small decisions to support and encourage the route chosen, or there may be cause to change the course completely due to unexpected development on the planned route.  The plan keeps the teams focused, targeted and unified.

The teams each have a specific task, scouting ahead, hauling material making food, upholding communication, medical care and so on. Each team could also have strategies how they want to tackle their tasks based on the chosen route. Once the teams start climbing they will face challenges that they could not see from afar. These problems/potentials could be if the team should take a 20 m climb up a ridge or if they should take a 30m climb up a wall of ice. These are tactics that are used to best suit your team and the situation at hand. Each individual also faces their own challenges and needs to make constant decisions where to place their fingers, if they should place spikes and holders to help their team members or move quickly to get out of the cold and so on. The teams’ survival will depend on all these factors, but if you weigh them in the most crucial decision was the strategic one from the start.

I can understand that some companies are climbing mountains with low visibility and that this makes it difficult to predict what route to choose, never the less, the team that should climb the mountain stands a better chance to reach the top if one common rout is defined, no matter what, compared to letting each team scurry all over the mountain. The choice of route will depend on your teams’ skills and how they can adapt and they also need to be aware of the circumstances around the choice of strategy. In this case a higher level of adaptability is required and management might require more detailed reports of what lies ahead of the teams for them to be able to support from base camp.

I have also mentioned vision in my earlier posts. The vision is more in the area of “Adrenaline is life”. This answers why we do what we do. You cannot achieve the vision, but you should be able to connect with it in everything you do.

Then there is goal, what are we doing to reach our vision: “Climbing mountains provides us with thrills and challenges”.

Finally we have objectives, what are we currently doing to reach our goal: “We will climb Mont Blanc within a year”.

Vision, goal and objective are what put us in front of the current mountain…

Is your company customer driven?

Working with logistics there has always been a logical approach to find what brings you most money. I remember a matrix from Martin Christopher’s book on the supply chain where a matrix explains how to get the most competitive cost advantage. The formula is really simple: Maximize the value advantage and the cost advantage and you will have superior customer value at less cost. No rocket science here. Looking at the picture I almost thought it naïve, but thinking a little longer I realize that this is key from a total business perspective. You won’t succeed with all articles, but there needs to be a plan for all articles what direction you want them to take and that the weight of your total offer should land in the top right hand box.

From Martinf Christophers book: Logistics & Supply Chain Management: creating value-adding networks
From Martin Christophers book: Logistics & Supply Chain Management: creating value-adding networks

The pitfall in supply chain driven companies is that the value advantage is set aside for the cost advantage. There can only be ONE priority. In most cases this is a simple way to manage companies because this is how you secure your margin without increasing the price of your product/service:

If the price remains the same and the cost is decreased the margin increases.
If the price remains the same and the cost is decreased the margin increases.

Again, not rocket science. The problem is that this impacts the customers’ perception or experience of the product and will have an impact on price and volume. This graph then looks a bit different due to needs to invest:

If the Price is changed, increasing volume, investments are required driving peeks in costs giving an uneaven margin.
If the Price is changed, increasing volume, investments are required driving peeks in costs giving an uneaven margin.

The risk is that the customers true need and behavior is missed out and that volume is driven up to meet the efficiency gains in the supply chain and at one point in time the stock start building up at a high rate, sales have no way to handle the volume because of declining interest from the customers and you end up discontinuing the article outside the plan with big write off and scrapping costs:

Peaks in costs due to write-off costs can ruin the margin for the entire life time of the Product.
Peaks in costs due to write-off costs can ruin the margin for the entire life time of the Product.

What you get is a projected margin of possibly 20% and land at 5% in reality over the product life cycle.

I would claim that most companies are cost driven, not customer driven. Sure you are aware that there is a customer and you need to attract them in order to sell, but are you meeting their true needs? Are you solving their problems or your own?

This is a complicated problem and the complexity increases with the size of the company. I would claim that small companies take care of this naturally because they live and breathe their customers’ wellbeing, at some point this is lost as the company grows, more people take part in decisions, the distance between the management group and the customer increases, communication becomes…complicated.

By making your company process driven, by implementing S&OP and driving a customer oriented Demand Plan you can get back to balancing the matrix. This will also enable your organization to work better with the mix of articles and services that your customers require.

Demand Strategy Decision Making in an Agile World

In an agile world, things are happening fast, sometimes very fast. In 2007, we all were looking somewhat curiously at the upcoming new smartphone called iPhone. Even if some of us saw the potential of the new appliance, I’m sure none of us could ever believe Apple’s market domination a couple of years later.

Not all of us have a paradigm shift to take care of. But still major questions about our businesses that in the end of the day may be the difference between success and disaster. In an agile world it’s not an alternative to make a long-term plan and stick with that whatsoever happens. Things are moving so fast that you would have to re-write your business plan every other month.

So how do you act in demand strategy decision making in an agile world?

Best practice is usually not to make decisions before you need to. In some extent, this may look too defensive, but it isn’t. It’s not that you wait until you have been surpassed by your competitors; it’s about being aware of situations that will require decisions at some point in the future. It’s a proactive approach that is not very easy to implement, but will provide an agile perspective to be able to catch good opportunities and minimize risk.

First;

Create the demand plan. This will be The Plan for the entire demand process management to lean on, that tells what to do. To be able to create such plan, you first need to formalize routines to aggregate credible historical information from all business areas and project it to the future to form a forecast, incorporating trends and buying patterns. But the forecast is not enough. You need to get the forecast on longer term focus, defining and describing the assumptions behind the forecast, as well. Assumptions may be regarding customers, opportunities, competitors, economy, market shares, etc.

Second;

Define and communicate Key Performance Indicators (KPI:s) that drives towards the strategic goals defined in your business plan. See a recent blog post for examples https://salesprocessblog.wordpress.com/2012/11/20/how-to-know-you-are-on-track-in-sales/

Third;

Get commitment from all other business functions to engage in one plan. Include Sales, Supply Chain, Marketing, New Product and Financial in the plan by having them to provide their view. For example, it’s not only about selling more, you have to sell right, too. To sell lots of products, which the company has not planned for and secured in stock is devastating for customer relations and can even harm the brand.

Fourth;

Plan and perform review meetings with the leaders from above functions once a month. In the meeting you would review the performance from last month; the KPI:s, but also discuss upcoming issues that may impact the business objectives. This would help you to create strong and fruitful bridges between sales staff and supply chain. To get profitability it is crucial that sales staff understands the signals coming from supply chain and vice versa.

Fifth;

Make decisions, but even more important in my agile perspective: decide upon decisions points – that’s when you have to decide. Use the review meeting to benchmark against the business plan and judge whether the gaps and issues are one-time, short-term or long-term trends that needs to be included in the updated demand plan; sooner or later. Decide directly upon the short-termers, set a fixed date for the one-timers and long-termers, regarding when you have to decide upon them.

Summary;

Demand strategy decision making in an agile world requires you to separate the decisions you need to take immediately and those you can wait to take. Risk is increased if you take decisions too early, while new opportunities may occur. Risk is also increased if you take decisions too late, since you gamble with your market leader position.

To manage the gaps against your business plan in an agile world you need to integrate all business functions in your company to agree on one plan, which will minimize the risk because the 360 degree view on issues and gaps.

The output is a demand plan you can trust and an action plan to act upon, as well as a time-line of decision points so you are aware of situations that, sooner or later, will have an impact on your strategic business objectives.

Best Regards,

Stefan

Sources:

The Demand Review (John E. Schorr, Oliver Wight America, 2007) http://www.oliverwight-americas.com/business-management-articles/pdf/the-demand-review-john-schorr.pdf

The Sales Scenario Tool (http://www.salesscenario.com/tool/) and app http://itun.es/se/-x4oH.i