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Good strategy evolves

April 10th, 2012

This year I will be facilitating a series of strategic planning workshops for a limited number of participating firms.  A detailed prospectus is in preparation right now but I wanted to quickly mention something about the process of strategy development that is important and relevant to everyone.

There is a temptation to think that “strategic planning” is a straight forward process involving the collection of information about your industry, your firm’s strengths and weaknesses, your target market’s needs and wants and then to come up with a set of creative ideas on how best to pull all of these things together in such a way that you outperform your competitors or, if you’re a proponent of the blue-red ocean philosophy, you create your blue ocean in new competitive territory.  This is correct to an extent. But it sets a totally false expectation about the process and the initial outcomes of the process.

If you have attended any of my programs in which I have talked about strategy development you may recall that I always say something like “great strategy becomes evident in hindsight.”  Strategy evolves and more often than not because of adversity and failure, not as a result of the “strategic planning” process itself.

Here’s an example of what I mean.  One of the most talked-about strategy successes is Southwest Airlines in the US.  If you aren’t familiar with this company click here – this report is also an excellent summary of a documented strategy based on Michael Porter’s ideas.  Southwest actually has a very, very sophisticated strategy that everyone in the industry knows about and many airlines have tried to copy.  However, to date, none have succeeded for a significant length of time.  So that raises two interesting issues: first, strategy is not simply about what you do (otherwise it would be simple to copy) it’s also about how you do it and how your customers relate to both of these things; second, when the company first came up with its strategic plan was it complete, a stroke of genius, or did it evolve?

Its initial idea was to offer a convenient service at a low price, so low in fact that it viewed car travel as its competitor not other airlines.  This was, and remains, the center of the company’s strategy but how it has been able to successfully achieve that, make huge profits and defend itself against competitors has become very sophisticated and often resulted more from accident or circumstance rather than by design.

For example, early in its development the CEO at the time, Lamar Muse, saw an opportunity to offer an out of state (Texas) service so he bought a 4th plane.  This made it possible for the company to also offer more services on its regular routes i.e. more convenience.  However, in a legal battle the court ruled that Southwest could not operate out of state so it had to sell the aircraft.  Still wanting to maintain the new more frequent regular service but only having 3 planes, they realized that they had to achieve gate  turnarounds in no more than 10 minutes – that was (and remains for most airlines) impossible but they found a way. I recall reading somewhere that one of the mangers said ” … we were all new at the job at the time and none of us knew that it was impossible to achieve that so we just did it!”

Now, fast turn around is central to Southwests strategy and its high asset utilization is the reason it enjoys and industry leading ROIC and low prices.  This “strategic element” was not written on the famous napkin that was used by Lamar Muse and Herb Kelleher to summarize the strategy. It arose out of necessity then became key.  In other words, challenges often lead to strategic evolution because those same challenges face all the industry incumbents and the first one to find a way to solve them gets the edge.

In the strategic planning workshops we’ll be specifically looking at this aspect of strategic evolution and how to factor it into your business model design process.

  1. April 11th, 2012 at 05:47 | #1

    A great post Ric! I am enjoy the new volume of interaction on the blog and it has inspired us to maintain our own firm postings!

    I also agree with you drawing on the turnaround time being a product of necessity and therefor empowered the company to ignore “industry standard” and forge ahead with a unique approach to a common problem. The competitive advantage (our margin, per your last post) exists because we have broken the barriers of how traditional firms operate. This culture has by extension spilled over to our clients (most notably our best and most open minded clients) and has breed a great deal of success for us and them.

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