by Denise Harrison, Executive Vice President and COO

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Strategic Planning Expert

by M. Dana Baldwin, Senior Consultant

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by Robert W. Bradford, President/CEO

Do you feel your company is threatened by changes that are happening in your industry right now or could be in the near future?  This can be a bad thing – but you might be able to turn the threat into an opportunity, as well.

To begin, threats can exist for many reasons, but the most strategic threats occur because something in your value stream is undergoing a fundamental change.  The best examples, in recent years, have been changes brought about by technology, such as the impact of online travel websites on the travel agency business, or the impact of the cell phone on landline phone business.  Fundamental changes do not always have to be caused by technological change, though.  It’s possible for a shift in regulation or business practices to dramatically change an industry, as well.

One important factor to remember when you are threatened by such changes is that the changes will only occur because someone wants something to happen differently.  It may not be your company, or your competitors who want to see change, but strategic changes, as a general rule, tend to happen because a customer or supplier group either chooses to meet their needs in a different way or – in the case of regulation – are required to meet their needs in a different way.  Thus, fuel-efficiency standards, which drove a greater use of plastic in automotive trim, led to changes in demand for chrome plating in auto manufacturing.

Almost always, these changes will seem to be something to avoid, because the way you have done business in the past won’t work in the changed market.  People who used to sell pay phone equipment, for example, find a greatly diminished market for their products because consumer cell phone use has dramatically reduced demand for the product.  People who sell paper accounting forms find that the use of electronic tax filing has also diminished product demand.  One of the most important lessons to learn from the experience of companies that faced this kind of threat in the past is that you cannot prevent the threat from happening, nor can you control the rate of change that comes with the threat.

In some cases, such as the tax form industry, the inevitability of the threat means you must find ways to adapt to the new world in which your product is less in demand.  Many companies would react to such a threat by downsizing, but the strategy of becoming the threat calls for you to ask a fundamental question:  Is my company’s strategic competency limited to the current, threatened product (or service), or is there a competency that can jump from the old product to the newer, threatening product.  Using this strategy, the tax form manufacturer would get into the business of writing tax software, and, as another example, a DVD video rental company would move into the business of renting movies online.

Obviously, this possibility isn’t always viable.  The pay phone manufacturer, for example, may find difficulty gaining the manufacturing expertise to make cell phones, and a company that makes great internal combustion engines might not excel at making motors for electric vehicles.  This can happen because the strategic competency which made your company successful is very closely tied to the old technology or practice which is being displaced.  In such cases, the strategy of being the threat is a poor choice, and you should instead look for applications of your relevant strategic competencies to less threatened markets (for example, the pay phone manufacturer, being adept at making sturdy and secure telecommunications equipment, might make airport check-in kiosks or automated teller machines).

For many of us, however, the threat is not a fundamental threat to the existence of our company – it is simply a threat to the way we used to do business.  Markets that are being transformed by such threats are fertile hunting grounds for upstart companies that are not married to the old way of doing business.  It is not unusual to see a Netflix rising over the ashes of the videocassette/DVD rental market, for example.

How can we assess (a) whether our company can be the threat and (b) how to make this happen?  The key to both of these questions lies in our strategic competency.  The main way that your company distinguishes itself in creating value for customers is the thing that will determine whether your company will be a nimble survivor or a has-been that should have jumped to a new market or product.  To assess this, pay careful attention to the adaptability of your competency to the new world presented by the threat.  If your competency is not too closely tied to the old way in your market, you can probably be successful in jumping from the old world into the new.  If the competency is closely tied – your strategic planning should steer you towards new uses for your competency, rather than struggling to apply your competency to a dwindling market.

So, let’s say you have a strategic competency that will enable you to create value in the new world created by a strategic threat.  How do you make your company into the threat?  Here are a few ideas from companies I have seen successfully make this jump:

1. Don’t delay getting any missing capabilities or technologies – acquire them if you have to.
2. Closely examine your company culture and push hard on adjustments that will drive your employees to embrace the new world.
3. Pay careful attention to compensation and other practices that may create incentives or disincentives to change.
4. Understand that some key employees will have difficulty making the change – and be willing to re-train them and even let go of them if they will become a drag on your agility.
5. Remember that the rules of the game may be changing fundamentally, and closely examine how you may need to change your strategic thinking to succeed in a dramatically changed market.

While these aren’t the only ways to assure success at becoming the threat and surviving a shrinking market, they are the most common ways of fostering revolutionary innovation that will confound your competitors and – hopefully – delight your customers.  Of course, a good strategic planning process will help your thinking in this immensely, and could possibly lead to the innovation that makes your company king of the hill in your evolved markets.

Robert Bradford is President/CEO of the Center for Simplified Strategic Planning, Inc.  He can be reached at rbradford@cssp.com.

© Copyright 2011 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission granted with full attribution.

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 By Denise Harrison, Executive Vice President and COO

Strategic Planning Expert

The location and severity of any specific natural disaster are difficult to predict – so you need to prepare for a disruption in your supply chain, given that a natural disaster could impact your business at some point in time.  Even Toyota, known for its superior management practices, was caught flat footed after the earthquake/tsunami, when its supply of a pearl luster pigment, Xirallic, was interrupted for several months. Was its supplier a small company?  No, it was the large chemical behemoth, Merck that supplied this product from its facility which was located in the region that was affected by the disaster. 

Toyota and other car manufacturers scrambled to meet their production schedules without this important pigment.  What did they do?

• Some car manufacturers immediately stopped taking orders for cars requested in the colors that used Xirallic.
• Some manufacturers changed to an alternative supplier offering some colors with a similar pearl luster quality 

How should you prepare?

First you need to know where your risks are:

• Identify your sole source suppliers (only one supplier is capable of producing this product/service)
• Identify your single source suppliers (you have a single source, but other suppliers are available)
• Answer the question: How fast does a disaster interrupt your production

Is it immediate?

Two weeks?

Two months?

Six months?

• The timeframe of the impact is important to how much focus you give to mitigating a specific risk 

Sole source – mitigating risk 

• Does your supplier have multiple production sites?

For example, Merck is building another production site in Germany, ensuring supply in the event that a natural disaster impacts one region of the world and not another

• Are there substitutes for the product/service?  In a pinch what could you do?
• Do you build inventory on the “immediate risk” items so that your production is not shut down while you explore other options?
• Do you have a communication plan for notifying your customers concerning the impact of a disaster when such an event happens?  The faster you notify your customers of the impact and the expected timing, the faster they will be able to decide their course of action.  Merck was slow to notify its buyers concerning what impact the disaster had and the possible timing for resolution.  While this is not always easy to predict, a happy, but unrealistic forecast is not what your customers want – they want to understand, to the best of your ability, what the timing looks like so that they can take steps to mitigate the risk for their customer base. 

Single source – mitigating risk 

• You can follow all of the steps in the sole source example, but you have some additional options as well.
• Have alternative suppliers pre-qualified, but make sure that you are qualifying suppliers that have a different risk profile.  Identifying an alternative supplier one mile down the road from your current supplier does not necessarily lower the risk by identifying and qualifying an alternative supplier.  This would help you if the production issue was a plant fire, but not help you if the whole area were flooded by a hurricane and production was impacted throughout the region. 

 Develop Plans to Mitigate the Risk

Once you have developed a list of your sole source and single source suppliers, and assessed the risk associated with each supply disruption, you need to develop a plan to mitigate the risk for the suppliers that would have a high and quick impact on your business if a disaster occurred.  You will also need to develop the communication plan so that your customers are kept in the loop and are not blind-sided by the lack of availability of a product.  One company I worked with identified one item that was sole source and had immediate impact on their production.  They decided to keep a large inventory of this product on hand; while it was a minor cost item, without it, the product could not be produced.  When the supplier had a strike, this company had enough supply of this item on hand to continue production.  This foresight allowed them to gain market share while their competitors were shut down. 

What about Service Industries – Are there any important supply issues? How about labor?

Yes, remember the Icelandic volcano that cut off travel to and from Europe?  Many firms, including service firms found that the volcano disrupted their supply of human capital.  As a service firm, it is important to understand where your risks are around human capital and ensure that you have back-up plans in place when travel logistics are interrupted for long periods of time.  

Lessons Learned

Did Toyota learn its lesson quickly enough to prevent the next production glitch? No, the recent flooding in Thailand has put another monkey wrench in its production schedule. What about your company?  An earthquake/tsunami in Japan or a volcano in Iceland or floods in Thailand –no matter what your threat looks like, you should understand the impact that the threat has on your business and develop plans to mitigate your risk.  If you have questions about how to incorporate threat risk assessment into your strategic planning process please contact me at: harrison@cssp.com 

For more on this subject please read: Turning Threats into Opportunities.

Denise Harrison is Executive Vice President and COO of the Center for Simplified Strategic Planning, Inc.  She can be reached at  harrison@cssp.com.

© Copyright 2011 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission granted with full attribution.

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By Robert W. Bradford, President/CEO

How are industries disrupted?  We have already identified the three most common causes:  technology, business practices, and law.  But if we want to do a good job anticipating disruption, we need to know exactly what kinds of changes are likely to lead to disruption.

As a general rule, disruption occurs because customer behavior changes radically – or the customer disappears altogether.  For example, the shift from land lines to cell phones (which is much more noticeable in younger generations today), is a radical change in customer behavior for telephone-oriented operations, and it may mark a complete disappearance for those whose markets depend on the existent of land-line service (companies that make RJ-11 jacks or pay phones, for example).

Some disruptions lead to very rapid change and disappearance of a market.  The rise of “smart phones”, for example, eliminated the consumers’ desire for a stand-alone personal digital assistant, making devices such as the Palm Pilot obsolete almost overnight.  Technological convergence has a tendency to eliminate discrete devices as they are combined into a single technology.

Other disruptions can take a longer time to play out.  The land line to cell phone migration is an example; so is the slow change from in-person to online banking, which started in the 1980s and is still playing out.

So what kinds of things cause changes in customer behavior?  Certainly, the three root causes we discussed earlier – technology,  business practices, and law, are at play here.  But to gain a more fundamental understanding of disruptive change, you need to think about how customers behave.  As a rule, customers make choices to seek pleasure or utility, and avoid pain.  This may be as simple as buying a candy bar – seeking the pleasure of sugar and chocolate – or as complex as buying insurance – avoiding the pain of an unanticipated financial loss.  In most business transactions, there is a delicate balance between the pleasure and utility of the product or service purchased, and the pain of paying for that product or service.  In other words, most purchases involve customers doing something they would prefer not to do, spending money.  Root cause changes, such as technology, may dramatically change a customer’s perception of pleasure, utility and pain in your market, because the change may change the fundamental experience of these three attributes. 

Let’s examine an example of radical change.  Changes in telephone technology and business practices led to the rise of call centers as a customer contact point.  This change was largely driven by suppliers desire to reduce cost by centralizing customer contacts and also by using technology to increase efficiency (both time efficiency and global market efficiency, by moving operations to markets with lower costs).  So far – increased utility for suppliers, and reduced pain, which may or may not be passed on to customers in the way of reduced prices. 

From the customer perspective, this shift looks different.  There is increased pain, as shifting responsibilities, reduced communications and technical abilities, and depersonalization of service came with the increasing use of call centers.  In some markets, this decreased value was accepted as a given, since all competitors essentially pursued the same change in business practices.  In others, the difference between the high pain and low pain offering led to unexpected changes in customer behavior.  For example, in the airline industry, the aggravation of low-cost call centers and long hold times led to accelerated adoption of online travel services.  This, in turn, enabled customers to quickly use technology to sort air travel options by price (and usually, by price alone), so that the market became increasingly commoditized.  One could argue that, by partially shifting the cost of the phone operation to the customer (in the form of longer hold times), airlines created a strong incentive to seek alternative ways of purchasing their product.  This dramatic shift essentially destroyed most of the travel agency industry in a very short time, and also – because of ticket price competition – led to the bankruptcy of several airlines.  Viewed from the perspective of the travel agents, this shift was extremely rapid and devastating.  When you look at how customer motivations interacted with shifts in business practices, it was entirely predictable (and, in fact, I did predict it when working with one airline in the early 1990’s).

While economists point out that customers do not always make rational choices, there are usually emotional balances driving customer behaviors.  Some consumers, for example, will spend 5 minutes driving out of their way to save 50 cents on a tank of gasoline for a car.  When you put it in price terms, this makes sense  – “I bought here to save 3 cents a gallon.” – but when you put the decision in relative terms, it is clearly irrational “I just spent time to be compensated at a rate of $6 an hour.”  So, when assessing how customers may dramatically shift their behavior, be sure to look for the emotional equations that are dominating people’s thinking, and not just the rational ones.  Here are the most common emotional decision drivers:

1.       Price – far too easy to focus on, because price is credible above most other claims.

2.      Status – customers will pay extra to be perceived as high status.

3.      Sex – customers will pay extra to think they are more attractive as romantic partners.

4.      Pampering/aggravation – customers will pay extra to feel they are treated well or to avoid the perception of mistreatment.

5.      Fear/hope – customers will pay extra to avoid things they fear or obtain a chance to achieve something they hope for (which is why lottery tickets sell).

When examining your markets, be sure to look at the effects that changing technology, business practices and laws have on all five of these things in the minds of your customers.  Whether your customers are consumers or companies, you will find that any of these can lead to significant disruption – and therefore both threat and opportunity – in your markets.

Robert Bradford is President/CEO of the Center for Simplified Strategic Planning, Inc.  He can be reached at rbradford@cssp.com.

© Copyright 2011 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission granted with full attribution.

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By M. Dana Baldwin, Senior Consultant

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by Denise Harrison,  Executive Vice President & COO

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by M. Dana Baldwin, Senior Consultant

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By Robert W. Bradford, President/CEO

As a rule, people don’t like to change.  People do change, however, and this happens for three basic reasons:

 Changing behavior can eliminate a major source of pain

An example of this is the mass migration of airline ticket purchases to the internet in the 1980s and 1990s.  Two sources of pain were eliminated through this – the inconvenience of working through an intermediary (the travel agent), and the higher cost of maintaining the agent-based distribution system.

Changing behavior can create opportunities

As eBay became a deep and viable market for all kinds of goods, many people in specialty retail businesses, such as collectibles, changed their business model to include a substantial amount of online auction sales to take advantage of the more robust market opportunities.

Changing behavior may be required by changes in the environment

Physician practices, historically dominated by the small, one or two doctor practice, have begun consolidating into larger and more sophisticated practices as a result of increased regulation and payment practices in the industry.

In each of these types of change, there is potential for destruction or major reconfiguration of the industries involved.  The travel agent business has become oriented toward very specific types of travel – and the mainstay of air travel is almost completely gone.  The collectibles markets affected by eBay have largely transformed into a hybrid of online/offline dealers.  Suppliers to the health care industry have changed their selling practices to target larger and more savvy buyers.  These changes are not something we can fight – they are inevitable consequences of changes in laws, technology and business practices.

For strategic thinkers, the foresight that would enable us to adapt to disruptive changes before they occur is incredibly useful.  Without question, the players in an industry who anticipate and adapt to such changes are most likely to improve their competitive position.

What are the best ways to spot disruptive changes in your industry?  It helps to understand the most likely drivers – technology, law and business practices.  Using each of these as a lens, you can look at your industry and ask whether any of these factors have changed to a point where they present an opportunity for major change.  One very effective way to do this is to put yourself in the customers’ shoes.  I like to ask for the three or four most important behavior drivers for customers – such as price, convenience, product features, etc.  With this list, you can ask “How will technology change our ability to drive customer behavior in the future?” (and, of course, “How will legal changes…” and “How will changed business practices…”).  You can rest assured that someone in your industry WILL use the changing situation to drive customer behavior – generally by attempting to draw more customers by meeting their changing needs and preferences better than other competitors.

Armed with this analysis, you can begin to piece together the most likely scenarios for your market, and identify the keys to effective response to the likely changes.  If technology, for example, is dramatically reducing certain costs in your industry, you can very effectively plan for an improved cost structure and, unfortunately, price competition.  The company who best anticipates future changes and positions itself to succeed is the one most likely to generate windfall profits – higher sales at a price that is not yet commoditized.  What you do with this windfall is strategically critical.  Smart strategists will invest much of the improved profit in building market share and reputation.  This is important – you CAN just let the increased margin flow to your bottom line, but it will make for a fairly weak longer term competitive position. 

The best strategic choice is to look at how you can apply your strategic competency to the future disrupted market.  For example, if you are good at being a travel agent, and your business is about to decline because of the internet, you want to ask “What strategic competency makes me a successful travel agent?”  The answer to this question will lead you to ways you might catch the wave of change, instead of being wiped out by that wave.

Robert Bradford is President/CEO of the Center for Simplified Strategic Planning, Inc.  He can be reached at rbradford@cssp.com.

© Copyright 2011 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission granted with full attribution.

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By Denise Harrison, Executive Vice President & COO

Strategic Planning Expert

As the US ramped up to participate in World War II, it found there was a shortage of leather for footwear for the armed forces.  In order to meet the demand for tanned leather,the government issued a challenge to Wolverine World Wide: “Can you develop a cost-effective way to tan pigskin?” Wolverine’s chairman Victor Krause rose to the challenge and developed the process that is still used today. 

What happened? Good news/Bad news 

• Good news:  during the war the demand for footwear for the armed forces took off and so did Wolverine’s business
• Bad news:  when the war ended Wolverine was left with lots and lots of tanned pigskin sitting in its warehouses 

What next? 

The company needed to find a new outlet for its tanned pigskin – what could this be used for?  (No, army boots had not become fashionable.)  By the end of the war America had changed.  Prior to the war people mainly lived in the city (urban) or on the farm (rural).  After the war a new living area emerged, a sort of a cross between the two: suburbia.  In the suburban neighborhoods, you were not packed tightly next to your neighbors with little or no greenery around.  Instead you had a house, a car and land.  With the land came lawns – but what does one wear when cutting the lawn?   Initially, men simply wore old wingtips.  When they bought a new pair of shoes,the old pair became the “weekend” pair.  But were these shoes really comfortable when performing the weekend chores?  What about women?  Women wore either heels or canvas sneakers. 

Birth of the Hush Puppies Brand

Krause saw that the population moving to suburbia would need a different type of footwear – the “casual shoe”.  He used his durable, waterproof pigskin and attached a crepe sole and, voilà – the casual shoe.- The Hush Puppies brand had arrived to meet this unmet demand for casual shoes. 

Where are Hush Puppies today? 

Have you forgotten the friendly Bassett hound that used to be part of your annual school shoe shopping expedition?  Well Hush Puppies are alive and well, with many more styles and state of the art comfort.  At a recent seminar, a recent attendee was wearing coral colored sandals (Hush Puppies) – these are not your grammar school Hush Puppies!  Now Hush Puppies is a global brand – nearly 20 million pairs sold worldwide. 

Lessons Learned 

When market demand changes, successful companies develop creative ways to adapt to change. Wolverine World Wide anticipated the need for the casual shoe when the population started moving away from the city and into the suburbs.  Along with this move, the workweek started to decrease and families had more leisure time.  The casual shoe fit right into these trends.  The development of the casual shoe niche was just the first step in developing niches in the footwear market.  During this time, who would have thought that you needed a different sneaker for walking, running and tennis? As a population becomes more affluent, markets expand into multiple niches. This is important, as emerging countries increase their disposable income, new markets will continue to appear. 

During your strategic plan you should:

• Identify emerging trends, not just for your product/service, but overall trends as well
• Identify how these trends might impact your current business
• Identify how these trends might generate new opportunities that leverage your strengths

Who knows?  Maybe you too can “make a silk purse out of a sow’s ear”. 

Additional information regarding innovation can be found by reading: Innovation: Where to Look for It.

Please visit our website (www.cssp.com) or give us a call if you have additional questions regarding assessing trends in your strategic planning process.

[1] “Hush Puppies America’s Greatest Brands”, American Brand Council, 2003

Denise Harrison is Executive Vice President and COO of the Center for Simplified Strategic Planning, Inc.  She can be reached at  harrison@cssp.com

© Copyright 2011 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission granted with full attribution.

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