Archive for July, 2010
Lean Your Ladder On The Right Wall
What wall have you leaned your company’s ladder on?
What is the key number, the focus or the goal that you are focusing your employees on achieving? Whatever it is, are you certain that you’re focusing on the right measure? Here are two examples.
Organizational Strategy Example #1
In “Good to Great” by Jim Collins, Collins talks about how Walgreens moved the ladder from one wall to another. Walgreens for many decades was focused on profit per store. Think of this as a math formula. How do you improve profit per store? More profit in as few stores as possible. That formula worked for Walgreens for many years.
But, growth stagnated. They struggled to find the right model to jumpstart growth again. Then they realized they had the ladder leaning on the wrong wall. Their key number should be profit per customer visit, not profit per store. What’s the implication of that new measure on the number of stores? You guessed it. They began a building spree that continues today to improve profit per customer visit. With more stores, there are more customer visits. And, because there are Walgreens stores everywhere, customers are focused more on convenience and less on price. As a result, profit per customer visit increases.
Organizational Strategy Example #2
Another quick example. In a recent Harvard Business School article, Novartis (a large pharmaceutical company) leaned its ladder on a new wall. Traditionally, the goal in pharmaceuticals is to develop a drug that treat conditions that are common to a lot of people. So, drugs were developed for cancers, high blood pressure, Alzheimers, cholesterol, etc. And, this approach has been a successful one.
However, Novartis recently decided to take a different approach. Instead of trying to create drugs that target the largest conditions, it now focuses its research and development investment on creating the most effective drugs - regardless of the size of the potential market. Novartis hopes that over time Doctors will regard Novartis drugs as more effective and, therefore, prescribe them more.
What’s Your Strategy?
So, how does this apply to you? Is your business plan for your company this year based on doing marginally better than last year? Or, is your plan for this year based on some serious industry niche analysis and internal soul searching to discover your companies unique opportunity not just to compete, but to dominate a particular industry niche?
When you dominate a niche, you become the go to company and competing strictly on price is less of an issue.
I don’t know what your experience with strategic planning has been (see article Strategic Planning or Root Canal - Which Would You Prefer?), but an effective strategic planning process will provide the opportunity for a significant financial return for your company.
The Problem With Strategic Planning
Most strategic planning efforts fall far short of their objectives. And, most of the time, it’s human behavior that get’s blamed. “We just let the plan collect dust on the shelf.”
The reality is that most strategic planning processes are flawed. I don’t get much fan mail from strategic planning consultants, but after having studied the results of strategic planning efforts for years, I’ve concluded that most planning processes are flawed. Flawed processes result in flawed results. Here’s what I mean.
Most planning processes start with establishing mission and vision. “Who are we and where are we going?” Then comes strategies, goals, objectives and action plans to support achieving the mission and working toward the vision.
However, this process only works if the marketplace wants what the company has declared it will provide. What if no one wants the products/services that the company provides? The planning process will fail to deliver the promised results.
Further, what if many other companies are already providing similar products and services? There may be a demand for your products and services, but there will also be competitive pressure to lower prices and erode margins.
We recommend a process that starts with gathering external data about what the market wants and who’s currently providing those products and services. The risk is that you may end up with data that suggests that your current products/services are missing the mark. The upside is that you’ll discover prime opportunities to win in specific market niches.
I clearly understand why many companies avoid strategic planning. But, done right, there are phenomenal opportunities to improve your organization’s performance. Remember, if you keep doing what you’ve been doing, you’ll continue to get the results you’ve always had in the past.
