Category: Strategic Planning

Every once in a while, I run across a company that is doing just fine, and has been pretty successful for a long time.

These companies scare me.  Nothing creates failure like success, and the temptation to rest on one’s laurels has heralded doom for many a fine organization.

These days, people at least accept the idea that old strategies don’t always work.  In the 1990’s, this was attributed to the “new economy”.  In 2009, it was attributed to the bad economy.  The reality is that old strategies almost always stop working, eventually.

There are three key reasons why your currently successful strategy is likely to break in the future:

1.  Technology

2.  Imitation

3.  Replacement

The first is a pretty obvious reason, if your strategy is built around technology.  Even if it isn’t, technology can do an end run around your product or service – just ask all the struggling tax service firms that are trying to replace low-end work lost to simple computer programs.  Even more insidious are technologies that suck the life out of your customers’ markets – it’s possible you won’t see those coming until it’s too late.

The second threat, imitation is a serious problem if your strategy becomes too successful.  Not surprisingly, competitors can sometimes see when your approach is akin to a license to print money, and you can bet they will want in on that action.  This doesn’t mean they will succeed – witness the ridiculous failure of most U.S. airlines who attempted to emulate Southwest Airlines in the 1990’s.  But even a failed attempt to imitate you will suck profits out of your market, and it will spoil your customers into thinking there will always be bargains waiting for them.  In the worst cases, everyone does get the basic idea behind your strategy, and the thing that originally set you apart becomes commoditized, which can be a nearly permanent problem.

The third threat, replacement, is sometimes – but not always – the result of technology, so it has a special status.  Anything that customers might use to replace the value you offer – not just your product – can cause a replacement problem for your strategy.  For example, hugely discounted airfares in the 80’s and 90’s replaced a main driver for need in the passenger rail and bus industries (price).

In each of these situations, playing the game as if it has not already changed can be a recipe for disaster.  Homing in on the issue – technology, competitors, or replacements – can give you the edge you need to keep going, but sometimes a complete re-thinking of your strategy is in order.

There is no question that this re-thinking can create a stressful time for an organization.  Not only that, but the re-thinking is not guaranteed to lead you to a suitable new strategy without some trial and error.  This is one reason why most of the really successful companies we have helped through this transition started while things were still going well.  Trial and error is much more affordable if your company isn’t on the ropes.  Even if you are on the ropes, a well-directed re-thinking of your strategy is likely to get you back on a positive track, so don’t delay the hard work that this calls for when you see the warning signs.

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

By M. Dana Baldwin, Senior Consultant

By Denise Harrison, Vice President

“First, the bad news, the market for buggy-whips has disappeared; but the good news is, that we have cornered the market for 8-Track tape players.”

Who makes the screens that go into electronic readers – you know the screens on Amazon’s Kindle^TM and Sony’s Reader^TM?  Prime View dominates this market; how did Prime View become the leader?  Is this a new company?  Well yes and no. Prime View was started by a Taiwanese paper company who saw that paper was being replaced by other media, in this case liquid crystal display (LCD) screens.  Prime View was born from this view of the future.[1]

The Importance of Market Analysis

The senior management team of the paper company correctly identified what the market really needed; the market did not need paper, the market needed something to display the written word.  Correctly identifying the true market need enabled the company to see electronic readers (e.g., Kindle^TM) as a substitute for using paper to publish books and other media.  Once this alternative technology was identified, the team developed a strategy to enter into the electronic reader market.  The electronic reader market is a very small segment of the overall LCD display market.  The larger segments of the LCD display market are dominated by large electronics companies, which are often competing on price.  Prime View selected the electronic reader market, a market that was still being driven by technological advances rather than lower cost.

Once they identified the electronic reader market, they decided that it would be easier to buy/partner to obtain the technology required, rather than develop it in-house.  They acquired several companies including Philip Electronics, NV’s e-reader division who was providing screens for Sony’s Reader^TM.  They licensed E-Ink’s technology to further enhance the product and subsequently became Amazon’s e-screen supplier for the Kindle^TM product.  Finally, in order to control the technology the company purchased E-Ink.  Now they dominate the e-reader screen market, and all the key providers (Amazon, Barnes & Noble, and Sony) of e-readers use Prime View screens in their products.

Keys to Success

1. Truly understand what the market needs – this is not necessarily what the market is already buying from you.  If you correctly identify what the market really wants, you will be able to see indirect competition and substitutes on the horizon.  Prime View realized that the market did not need paper, but an alternative medium to display the written word.  They realized that LCD screens would be used in place of paper.
2. Select a market where your company will be successful and develop a strategy to enter that new market.  Prime View selected the electronic reader market where technology was key to market differentiation, rather than lower cost.
3. When entering a new market, make the “make/buy” decision early; can you grow the competencies needed to compete in this market in-house or is it faster and more cost-effective to buy a company with the required competencies?

What is next for Prime View?

Now that Prime View has the dominate position in this market, it cannot rest on its laurels.  The good news is that the market is growing quickly; the bad news is that this market growth has attracted many competitors.  How long will this market be technology driven? What does Prime View need to do in order to continue to be the market leader?  When will the transition come that will move this market from a specialty market to a commodity market where low cost defines the winner?  How does it go about looking for the next emerging segment in the LCD industry – a new segment where technology is driving success rather than low cost?  As the market- dominate player, you cannot kick back and enjoy success, you must plot the next move on the chess board so that you are positioned for success for years to come.

[1] “Race Heats Up to Supply E-Reader Screens”, Wall Street Journal, December 29, 2009, p. B1.

By Robert W. Bradford, President/CEO

One of the hardest things to get right, strategically, is the true value of your product or service.  This is understandable, since the only true measure of value is what an individual customer will pay at a specific point in time.  Most of us look at our costs- commodity based – or competitors’ prices- also commodity based – when thinking about pricing.  This is silly when pursuing a specialty strategy, since the customer is your best source of value information.

Some companies, realizing this, will ask their customers directly what the value of a product or service would be.  While this can give you decent guidelines for pricing, we should be aware that customers won’t verbally answer this question the same way they would if they were actually reaching into their wallets to buy your product or service.  Indeed, in many situations, customers will consistently under-report the prices they would be willing to pay, because they expect their answers will cost them in the future.  Fortunately, there are a few other clues we can look at to help us with our thinking on prices.

1.           Substitutes

Substitutes are a rich source of information about value.  There are three key substitutes you should be aware of in pricing:  (1) Directly competing products, (2) Indirectly competing or combination products, and (3) the ultimate substitute, not buying anything at all.

2.           Measured changes

This source of value information relies upon the impact of purchasing your product or service.  Sometimes, this is very direct – using a product or service may save your customer money that they would have spent on something else.  A super simple example would be drinking cheap beer instead of expensive champagne – you know the value is no more than the price of the champagne, since the customer will save that much by switching to another (if inferior) product.  Another example would be consulting services – if working with a sales trainer, for example, is guaranteed to increase your sales by a certain amount, you would expect the cost to be less than or equal to that net value.

3.           Actual buying behavior

Without question, this is the best data on value.  When a customer buys, you know that the value – to that customer – is greater than or equal to the price.  Conversely, when the customer does not buy, you know the customer’s perception of value is less than or equal to the price.  If you have many, many pricing opportunities (such as in retail sales), you may want to rely very heavily on this data, as long as you have a good means of tracking buyer behavior.

How do you set your pricing?  Given that 90% of pricing errors are under-pricing, what do you do on a routine basis to evaluate how your pricing fits with your company’s overall strategy?  We’d love to hear any stories you have about what is – and isn’t – working.

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

By M. Dana Baldwin, Senior Consultant

By Denise Harrison

“As the housing market collapsed in late 2007, Moody’s Investor Service, whose investment ratings were widely trusted, responded by purging analysts and executives who warned of trouble and promoting those who helped Wall Street plunge the country into its worst financial crisis since the Great Depression.”[1]

Banks failing, real estate loans made to people who did not have the means to repay them, institutions using derivatives without fully understanding the risk – what happened?  Were executives just trying to meet their short-term goals?  Did these goals enable them to qualify for significant bonuses?  Did this achievement of short-term goals lead to long-term instability?

Many of the financial institutions currently in distress did not pay heed to the warnings of a real estate bubble.  Instead many institutions developed plans to keep the top line growing in spite of the increasingly risky nature of the borrowers and the overvaluation of the underlying collateral.  Could this have been prevented?

Well, hindsight is 20-20, but the lessons here are important and should be a part of your strategic planning process:

• Evaluate external forces – (e.g. is there a bubble?)  Are your goals consistent with the external environment?  How are you positioned if the bubble bursts in 1 year? 2 years? 3 years? Are you making the naïve assumption that business will continue to grow? Do your goals explicitly take risk into consideration?
• Are top line growth goals in line with long-term stability and profitability and perhaps survival?
• Are you not investing in key projects in order to make the top line?
• What will the consequences be if you do not invest?  Will it impact your long-term growth?
  • Will your phone system go down if you do not invest?
  • Will you have a safety issue if you do not continue with training?
  • Will you have inadequate staff for the upturn if you do not replace key positions now?
• Are you taking on customers who are a time sink in order to make your top line?
• Are you using the right metrics?  Are you measuring success from a customers’ viewpoint?  (If you are UPS should you measure package delivery or package receipt – i. e. did the addressee really get the package?)

During economic turbulence, be sure you set realistic goals that do not jeopardize your company’s long-term viability.  Position your team and your company for the recovery by setting reasonable targets that are not solely focused on short-term results.

[1] “How Moody’s Sold Ratings and Sold Out Investors”, Kevin G. Hall, McClatchy Newspaper, October, 2009.

By M. Dana Baldwin, Senior Consultant

We often get questions asking what the difference is between a Business Plan and a Strategic Plan.  The first difference is there is a significant difference in intent.  A Strategic Plan is focused on improving a company’s performance, exploiting opportunities and building market share.  A Business Plan is most often used at the beginning of a company’s existence to define the initial goals and objectives of the company, its structure and processes, products and services, financial resources, staffing/talent needs and all of the basics which go into forming a company and getting it functioning.

Elements of this plan usually include:

1.      What products and services the company will offer to the marketplace.

2.      What types of customers the company will target

3.      What skills and capabilities the company will need to compete effectively and where the company will obtain those skills and capabilities

4.      Determining trends in the marketplace, and the characteristics of the market segments the company will initially pursue

5.      Developing how you will sell into the market segments you are intending to pursue.  What demographics will you target?  What are their buying behaviors?  How will competition likely react to your company entering these markets?

6.      What will your costs be in each of the parts of the company?  How will you fund them during the start up phase?  What are your first and second year projections for revenues and expenses?  How will you make a profit?

Usually a business plan is an overall guide to setting up your business, although some will use it as a more detailed one year plan based on the Strategic Plan. Often there is considerable overlap between the two plans inasmuch as they will often cover similar ground.  Generally, however, we envision a business plan as the blueprint for setting up your company and getting it started, and a strategic plan as the ongoing game plan to continually improve market share, volume and profitability.

The intent of a strategic plan is to develop a much more targeted vision of where you want to take your business in the future and how you will accomplish your strategies, goals and objectives, once the business is established and ongoing.  Strategic planning is the 30,000 foot view of where we take the company.  In your strategic planning, your focus turns more toward looking at the current situation, analyzing what your strengths and weaknesses are, determining how best to build on your strengths and avoid being trapped by your weaknesses. 

You will look for your strategic competency, which we define as a sustainable competitive advantage built on the skills, processes and knowledge contained within your company.

By building on your strategic competency, making it better and even more effective as a sustainable competitive advantage, you will improve the opportunities to excel as a company, gaining market share and profitability.

All of the elements of strategic planning, starting with your current situation, working through the analyses of your company, your markets, competition, opportunities and finding out where you may have gaps between your current performance and where you should be in the future, lead to the development of logical, attainable (yet ambitious) strategies which will head you toward winning a higher market share and better profits.

M. Dana Baldwin is a Senior Consultant with Center for Simplified Strategic Planning, Inc. and can be reached at baldwin@cssp.com.

© Copyright 2009 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission granted with full attribution

By Robert W. Bradford, CEO/President

The other day I was talking with a CEO about building strategic alignment between business units in his organization. I was intrigued, because my questions about the company’s strategic competency yielded a history of the company – but no clear sense of strategic competency. In other words, the CEO knew WHY the company had the dozens of different products and markets they had – but not why it made sense to have all of those business units in one company.

On reflection, many of the business units had elements in common – some sold to similar markets, made similar products, or used similar processes. There were even a few that could be combined into a vertically integrated supply chain. But all of this was the result of opportunistic acquisition – not a clearly defined strategy of building skills, processes and knowledge around a true strategic competency. Without question, in this situation, the key to good strategic alignment – getting the business units pulling together into a company with a unified strategy – is a clear, concise definition of a true strategic competency.

Those of you who have been to our Simplified Strategic Planning seminar will recall that a strategic competency is a combination of skills, processes and knowledge that create value for your customers, differentiate you from your competition and are difficult to copy. As the global economy makes the world smaller and more commoditized, true strategic competency is the key to profitability for any successful company you can name. I can name small delis that have a strategic competency…and large multinationals that do not. Interestingly, the existence of a true strategic competency seems to correlate with long term profitability and – perhaps more importantly – the ability to weather ups and downs in your market environment.

When considering questions of strategic alignment, it’s always a good idea to start with a clear understanding of your strategic competency. If it’s real, everyone in your company will “get it”, and it will be simple to focus on building your business around it.  If you try to work with an unrealistic strategic competency, it’s very likely your people will fail to support it because they simply can’t believe in it. A workable strategic competency does not have to be something you are the best in the world at – but you do have to have a realistic shot at that title. If you do, everyone in your organization will have something they can align with and strive for. If you don’t, your strategies can be just another “make believe” exercise that fails to garner the necessary support below the top level of your organization.  The larger your company is, the more important this characteristic of strategic competency becomes.

In the case of the CEO I spoke with at the top of the article, the key for his organization is to: first, arrive at a clear understanding of the company’s strategic competency, and then realistically assess the relationship of each business unit to that competency. It’s likely some business units will not support the ultimate competency – and those units should be spun off, sold, or (in the worst cases) closed down. In the best of all possible worlds, each business unit would find a place supporting a strategic competency either independently, or as part of another company whose strategic competencies are well served by the skills, processes and knowledge present in that business unit. This approach would lead to greater profitability for each business unit, and a much clearer shared sense of direction for the company as a whole.

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

by Denise A. Harrison, Vice President

Smaller companies often feel dwarfed by the giants in their industry, especially during tough times.  Often industry giants are better at weathering economic downturns with their wide array of resources. But Arena Resources’ strategy not only allowed the company to survive this economic downturn, but turn in exceptional performance – better than the industry leaders.  Arena Resources, a small oil exploration and production company, has less than 2% of the revenue of the industry leaders (Shell, Exxon Mobil).  In addition, very few industries have had to endure greater fluctuations than the oil industry with oil price highs of $147 per barrel in July 2008 and lows of $30 per barrel in December, 2008.  How did Arena Resources make it onto the Fortune list of fastest growing companies (#8) in spite of this industry turbulence?

The Road Less Traveled

Arena Resources chose not to compete directly with the industry giants, instead it focused on oil production assets in the southwestern United States that were no longer attractive to the industry Goliaths.  The cost of drilling and producing oil in this region exceeded what was acceptable in the larger companies’ financial models; these companies prefer to concentrate their resources on exploration of large oil fields with large potential.  When Arena purchased land in this region (approximately 11,000 acres), the land produced 200 barrels of oil per day. Arena knew through its research and evolving technology, which through investment the land could be more productive.  Through Arena Resources’ focused efforts this land is now producing 6000 barrels per day.  The company does pay a high cost to produce a barrel of oil – almost $35 per barrel, so when oil prices decline significantly, profitability plummets; but when oil prices are over $60 per barrel the company makes a nice profit. Arena is betting that the price of oil will remain over $60 per barrel for the significant future.  The high cost of production and the relatively small output is not attractive to its behemoth competitors, so this strategy to take the road less traveled allowed Arena Resources to grow profitably without going head-to-head with the major industry players.

What about Your Company’s Strategy?

Many companies decide to compete in markets that are attractive, even though larger competitors with greater resources are already firmly entrenched or aggressively pursing these markets.  Going head to head with industry giants often drains the resources of a smaller player with little forward progress in their market position.  Are you going after the attractive markets that set you in direct conflict with industry giants?  Are there niches that you could pursue that are not interesting to the larger companies? As you develop strategy your team should consider:

1.      Market segment attractiveness (including growth and profitability)

2.      Your competitive position in a market segment – what is the competition’s market share?  Are competitors already firmly entrenched?

a.       What other companies compete in this segment? In this case companies like Exxon and Shell focus their resources on exploration, looking for the big prizes.  Arena focuses on production, but the production increases that are attractive to Arena Resources are too small to concentrate on from a larger company’s perspective.

b.      What are the competencies required to compete this market? Do we have them?  Are there strategic competencies that give us significant differentiation? In Arena Resources’ case, its competency is secondary recovery from known oil and gas resources – little exploration risk but a requirement for execution excellence.  Their competency comes from their knowledge of the geology in the basin in which they work, combined with their technical skills in secondary recovery.

In order to compete and win, you must consider both market attractiveness and the competitive landscape of all of your market segments before you select the ones on which you will focus.  You will often find a segment that is smaller has less competition and will provide your company with significant growth and profitability.  In strategic planning, selecting the road less traveled may be a key ingredient to your company’s success.

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