Regular readers will know the importance of asking the right questions in order to make the intelligence that informs strategy relevant. For example, even if you know who your customers are, if you don’t also understand why they are your customers it won’t only undermine your marketing strategy it will undermine the entire company strategy. How? Read on…..
Herb Kelleher. Knows the value of knowing.
Consultation is often performed as little more than lip service, as a misunderstood ‘must do but don’t really understand how or why’ exercise before the ‘clever’ people get down to creating the strategy.
And yet, many strategies which look great at first read are doomed before they are even launched because corners were cut during consultation and they fail to understand or reflect reality.
One example is in establishing who your customer is, on the face of it quite a simple thing to research. That extends to who your potential customers are. Again, not exactly a stretch and once known we can plan how to go after them. Not forgetting, as too many do, the retention of your current customers!
Fine. Tick the box. Get on with the strategy.
Wait!
You forgot to find out why they are your customers.
A great example of the value of understanding why they are your customer is frequently relayed by Herb Kelleher, one of the founders of Southwest Airlines in the USA and their former CEO and Chairman. The way he tells the story it is one of knowing who you are in competition with but, as you will see, it is also one of knowing why your customer is your customer.
Southwest Airlines are famous for their really low fares which made Kelleher very popular with travellers but less so with his shareholders. In fact Southwest’s shareholders could not understand why they were only charging $79 for a ticket from Los Angeles to Las Vegas when their nearest rival was charging almost double that.
Those shareholders asked Kelleher to explain why they couldn’t charge $129? They would still be the cheapest available flight but profits would surely be higher?
But Kelleher had done his research; he had consulted properly and had asked the right questions. He knew that such a hike in price could hurt Southwest. How?
When Southwest set their ticket at $79 it was no accident. $79 was the cost of driving from Los Angeles to Las Vegas (factoring in maintenance and the like). Kelleher realised that as well as being in competition with other airlines, if Southwest set their ticket price right, they could also compete with the car. He knew that if they raised their prices they would still be cheaper than other airlines but would no longer be able to compete with the car.
Kelleher saw it as knowing his competition (the car) but it was also knowing why those ticket purchasers were Southwest customers. For many it was because they could fly as cheaply as they could drive. Without knowing that, Southwest might have followed their shareholders wishes and raised prices and then wondered why business had fallen.
Now, take a look at your own strategy. Is it based on the shareholders assumption or Kelleher’s intelligence? Is it based on sound consultation and research or was one (or more) vital question omitted leaving it standing on foundations of sand?
You cut corners when consulting at your (and your business’s) peril.
© Jim Cowan, Cowan Global Limited, 2011
STRATEGY – ARE YOU PLAYING ALONG OR PLAYING TO WIN?
25 02 2011“Told you so.” It’s never a nice thing to have to say to someone but every now and then, for their own benefit, some people need reminding of things you had previously told them which they chose to ignore. So when we came across some research which supports our stance that most organisations do not understand how to properly develop successful strategies we couldn’t resist a little “told you so” of our own. Will you listen? That’s up to you.
Which road is your strategy taking you down?
Here at Cowan Global we come into contact with all sorts of organisations and their strategies, from sporting bodies to large corporations and from one man bands to the third sector.
The fact that most of these organisations come to us when they find their strategy simply isn’t working probably gives us a fairly negative view of the quality of planning across all industries but our gut instinct has always been that here in the UK and in Europe we are pretty poor when it comes to strategy.
Part of the problem has seemed to be that, for many, they know they should have a strategy and so create one that is a strategy for the sake of being a strategy, probably a fill in of a template borrowed from some other company that hadn’t realised strategy is personal and therefore template sharing is not a good thing.
The reason behind having a good strategy is to be better, to win, to improve market share, to identify new markets, to grow. It is not an exercise in (yawn) ticking the right (yawn) boxes, putting the right phrase (yawn) in the right column and (yawn) hey presto, we have a strategy (not).
There has been research, but little of the robust variety, suggesting that anywhere between 40% and 90% of corporate CEOs don’t understand strategy. There has also been research (but not sound research) suggesting that Board level understanding of what strategy is, is (politely) low.
Now the McKinsey Quarterly have tested the theories, our gut feel, the varying levels of prior research with their own survey and are reporting that creating a winning strategy is a struggle for most companies. So, the good news is, you’re not alone but that’s hardly the attitude to apply to growing your business!
In a survey covering 2135 companies across Europe, North America, India and China they have found, “only 53% of executives characterize their companies’ strategies as emphasizing the creation of relative advantage over competitors; the rest say their strategies are better described as matching industry best practices and delivering operational imperatives—in other words, just playing along.”
Forty Seven percent are playing along; they have a strategy because, well, erm, they should! We are surprised that as many as 47% admit to this and suggest the true figure may even be higher.
For those reading this in Europe, it gets worse. From a list of ten test statements describing their strategies, European companies scored lowest on 9 out of the ten. Only 25% agreed that ‘our strategy consists on decisions based on vigorous debate about alternatives.’ Take a second to digest that figure. Seventy Five percent of European corporate strategies do not vigorously consider alternatives.
It gets worse. Only 13% of Europeans passed the test of ‘our strategy relies on novel data and insights not available to competitors.’ Please, take another moment. Read that again. Eighty seven percent are planning to go into competition based only on intelligence they share with their competitors. What of the insights that will allow them to differentiate themselves from their competitors? What of consultation and research independent of that available to rivals? What of planning for success instead of mediocrity!
The report makes fascinating reading for us, especially in that it supports much we have been saying about how little the development of quality strategy is understood. It should also make fascinating reading for ALL organisations who are striving for success because it is an alarm bell, a warning but also an opportunity. You can do much better than you are.
Now, how do you break it all down into English, into bite size, understandable, achievable chunks which can be understood from Boardroom through management to delivery? That’s where we come in, why not get in touch? It’s your future; we’d like to help you ensure it’s a successful one.
To read the full report; ‘Putting Strategies to the Test: McKinsey Global Survey Results’ click here.
© Jim Cowan, Cowan Global Limited, February 2011
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