Potential: Revealed

Strategic Thinking, Innovative Ideas, Growth Marketing, and Revealing of Potential

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Electronic Bill Pay, After All These Years

Recently I did some work for a client who asked “tell me about the market for bill payment services in the United States?” I was in this business for a number of years as an executive for the market’s largest provider of such services but had not looked at the market at a broad level since 2008. I thought it was interesting to see how things have unfolded and thought I would share with everyone.

First of all, even though electronic bill payment is relatively mature I talk to a lot of people who are quite knowledgeable about financial services, payments and technology who don’t really understand the bill payment ecosystem nor the differences between the two main models. Below is the fastest growing model and soon to be the largest in terms of adoption and usage, referred to as Consolidated Bill Payment. Named such because it is a service that consolidates a customers’ bills and payments at a single point – most often through their bank.

(click to enlarge)

The second model which is popular and growing quickly but not as fast is known as Biller Direct – it is projected to be surpassed by Consolidated in terms of usage volume in the next few years. Biller Direct as the name implies is where a consumer pays their bill directly to their biller (for example, logging into your cable provider’s website and paying your monthly bill).

Biller Direct Ecosystem (click to enlarge)

I’ve also included here a snapshot of the size of this market overall. It has grown well since 2009 and projected to continue at overall a double digit pace for key electronic methods – ACH debit at 12% (for example, when you have your mortgage automatically deducted each month from you checking account), Online Biller Direct at 13% and Consolidated at 18.5%.

Bill Pay Market Size Projected (click to enlarge)

Behind these number though is a natural slowing of this growth rate. The rates quoted just before are the compounded average rate over 5 years from 2009 to 2014 but the rate of growth from any year to the next year is decelerating. It is one of the key challenges to providers in this market – how to deal with a rapidly decelerating growth rate without resorting to price and volume as your only competitive weapons for revenue growth. As evidence, the anticipated revenue growth rate for providers selling the Consolidated model is just 8% per year from 2009 to 2014 (and as with volume growth rates, is decelerating toward zero as 2014 approaches and we get beyond it).

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A Great One Passes

The most indelible memory I have of growing up in Michigan was listening to Detroit Tiger games late at night throughout the summer. I’d be in my bed with the window open and possibly a slight breeze blowing in. The lights would be off and my transistor radio was under my pillow — so I could listen to the games even though my parents had long earlier told me to go to sleep. If it was a West coast game and well past midnight local time, I often fell asleep with the voices of the game playing in my dreams.

The voice I remember most clearly for all those games – I probably listened to 100’s of them — was of Ernie Harwell. He was the voice of the Detroit Tigers for 40 years. Ernie passed away today, May 4, 2010. He was 92 years old.

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As America seems to regularly produce, his life story is one of rising to great heights and reaching potential not clearly evident at the start of his life.

He was born in 1919 in Washington, GA a younger contemporary of Ty Cobb, also of hot, flat and sparsely populated area of rural south Georgia. It is interesting he would end up, as Ty Cobb did, with the Tigers. Where Ty Cobb was ornery and remembered as a difficult man. Ernie Harwell was almost completely the opposite.

He was born with a severe speech defect. Through therapy and forcing himself to participate in debates and classroom discussions, he had overcome the handicap by the time he graduated from Emory University.

Harwell’s big break came in unusual fashion.

Brooklyn Dodgers radio broadcaster Red Barber became ill in 1948, and general manager Branch Rickey needed a replacement. After learning that the minor league Atlanta Crackers needed a catcher, Rickey sent catcher Cliff Dapper to Atlanta and Harwell joined the Dodgers. It is the only time a player was traded for an announcer in major league history.

Through his challenges with his voice, growing up in rural and relatively poor south Georgia, and needing a break as lucky as the one he got with the Dodgers, it is amazing he ended up making a living with his voice, doing so at the highest level of excellence. And what a voice it was. I don’t think I’ll ever forget its sound. And I hope I don’t.

He announced in September 2009 that he’d been diagnosed with inoperable cancer of the bile duct. He took the news with characteristic poise, saying he planned to continue working on a book and other projects.

“Whatever happens, I’m ready to face it,” Harwell told The Associated Press on Sept. 4.

“In my almost 92 years on this earth, the good Lord has blessed me with a great journey,” Harwell said at a microphone behind home plate when honored by the Tigers at a home game immediately after he announced his cancer diagnosis. “The blessed part of that journey is that it’s going to end here in the great state of Michigan.”

On Tuesday, Senator Carl Levin said this on the floor of the U.S. Senate: “All of Michigan will miss the sound of his voice telling us that the winter is past, that the Tigers had won a big game, or that they’d get another chance to win one tomorrow. We will miss his Georgia drawl, his humor, his humility, his quiet faith in God and in the goodness of the people he encountered. But we will carry in our hearts always our love for him, our appreciation for his work, and the lessons he gave us and left us and that we will pass on to our children and grandchildren.”

Perhaps one of the greatest facts about Ernie was that he was married to his wife, LuLu, for 67 years. I’m sure she misses him more than any of us possibly can.

But for me, I know I will miss that voice. God Bless You, Ernie Harwell.

Potentially Optimistic

At another URL I maintain a blog that is quite political, or at least contains a fair amount of writing and comments on the state of things political and socio-economic. I refrain from that on my blog here because it is my intent to stay above — or outside — that often contentious set of issues (important as they may be).

I have been looking for, however, a way to write in this blog about the state of affairs in the U.S. from a balanced but positive perspective. I continue to believe that the potential of America is still yet to be fully revealed. I am certain I have this hope in large part because I desire it to be true for my own children’s sake.

It is hard, in my opinion, not to argue that I and my fellow Americans are quite fortunate to be citizens of an exceptional nation. As our President said recently, many nations, perhaps all, view their nation as exceptional too. That is fine and such an attitude is helpful in fueling the growth and prosperity of the world’s peoples and can serve to lift them out of poverty and turn attention away from conflict and towards betterment of all types.

I will contend though that America has a special role to play in continuing to set an example — and to rely upon its own example set into motion over 200 years ago — for the world to follow.

It is, in other words, important to be optimistic in all facets of life. Even more so in the face of seemingly challenging and possibly overwhelming odds against continued success — or as some fear, survival. As I often quote to my friends, and attribute to my “grandfather”, when you have “fallen into a hole, there is no place to go but up”. This simple thought often gives me encouragement and I use it to encourage others (or add a little humor) when facing a difficult situation.

Gary Becker is a very intelligent man and someone to pay attention to. His writings, fortunately, will outlive him and now that he has reached advanced age his thinking seems clearer than ever. I have produced the link to the text below here. What he says about our future has much caution and some prescriptions for change, but overall it is the optimism for the future, the potential we can still reveal as a nation, and the chance to continue to be a global role model that appeals to me. I hope to you also.

—–

Stanford, Calif.

“No, no. Not at all.”

So says Gary Becker when asked if the financial collapse, the worst recession in a quarter of a century, and the rise of an administration intent on expanding the federal government have prompted him to reconsider his commitment to free markets.

Mr. Becker is a founder, along with his friend and teacher the late Milton Friedman, of the Chicago school of economics. More than four decades after winning the John Bates Clark Medal and almost two after winning the Nobel Prize, the 79-year-old occupies an unusual position for a man who has spent his entire professional life in the intensely competitive field of economics: He has nothing left to prove. Which makes it all the more impressive that he works as hard as an associate professor trying to earn tenure. He publishes regularly, carries a full-time teaching load at the University of Chicago (he’s in his 32nd year), and engages in a running argument with his friend Judge Richard Posner on the “Becker-Posner Blog,” one of the best-read Web sites on economics and the law.

When his teaching schedule permits, Mr. Becker visits the Hoover Institution, the think tank at Stanford where he has been a fellow since 1988. The day he and I meet in his Hoover office, Mr. Becker has already attended a meeting with former Treasury Secretary Hank Paulson and spent several hours touring Apple headquarters down the road in Cupertino with his wife, Guity Nashat, a historian of the Middle East, and their grandson. “I guess you’d call our grandson a computer whiz,” he explains proudly. “He’s just 14, but he has already sold a couple of apps.”

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I begin with the obvious question. “The health-care legislation? It’s a bad bill,” Mr. Becker replies. “Health care in the United States is pretty good, but it does have a number of weaknesses. This bill doesn’t address them. It adds taxation and regulation. It’s going to increase health costs—not contain them.”

Drafting a good bill would have been easy, he continues. Health savings accounts could have been expanded. Consumers could have been permitted to purchase insurance across state lines, which would have increased competition among insurers. The tax deductibility of health-care spending could have been extended from employers to individuals, giving the same tax treatment to all consumers. And incentives could have been put in place to prompt consumers to pay a larger portion of their health-care costs out of their own pockets.

“Here in the United States,” Mr. Becker says, “we spend about 17% of our GDP on health care, but out-of-pocket expenses make up only about 12% of total health-care spending. In Switzerland, where they spend only 11% of GDP on health care, their out-of-pocket expenses equal about 31% of total spending. The difference between 12% and 31% is huge. Once people begin spending substantial sums from their own pockets, they become willing to shop around. Ordinary market incentives begin to operate. A good bill would have encouraged that.”

Despite the damage this new legislation appears certain to cause, Mr. Becker believes we’re probably stuck with it. “Repealing this bill will be very, very difficult,” he says. “Once you’ve got a piece of legislation in place, interest groups grow up around it. Look at Medicare and Medicaid. Originally, the American Medical Association opposed Medicare and Medicaid. Then the AMA came to see them as a source of demand for physicians’ services. Today the AMA supports Medicare and Medicaid as staunchly as anyone. Something like that will happen with this new legislation.”

Bad legislation, maintained by self-seeking interest groups. Back in 1982, I remind Mr. Becker, the economist Mancur Olson published a book, “The Rise and Decline of Nations,” predicting just that trend. Over time, Olson argued, interest groups would form to press for policies that would almost invariably prove protectionist, redistributive or antitechnological. Policies, in a word, that would inhibit economic growth. Yet since the benefits of such policies would accrue directly to interest groups while the costs would be spread across the entire population, very little opposition to such self-seeking would ever develop. Interest groups—and bad policies—would proliferate, and the nation would stagnate.

Olson may have sketched his portrait during the 1980s, but doesn’t it display a remarkable likeness to the United States today? Mr. Becker thinks for a moment, swiveling toward the window. Then he swivels back. “Not necessarily,” he replies.

“The idea that interest groups can derive specific, concentrated benefits from the political system—yes, that’s a very important insight,” he says. “But you can have competing interest groups. Look at the automobile industry. The domestic manufacturers in Detroit want protectionist policies. But the auto importers want free trade. So they fight it out. Now sometimes in these fights the dark forces prevail, and sometimes the forces of light prevail. But if you have competing interest groups you don’t end up with a systematic bias toward bad policy.”

Mr. Becker places his hands behind his head. Once again, he reflects, then smiles wryly. “Of course that doesn’t mean there isn’t any systematic bias toward bad policy,” he says. “There’s one bias that we’re up against all the time: Markets are hard to appreciate.”

Capitalism has produced the highest standard of living in history, and yet markets are hard to appreciate? Mr. Becker explains: “People tend to impute good motives to government. And if you assume that government officials are well meaning, then you also tend to assume that government officials always act on behalf of the greater good. People understand that entrepreneurs and investors by contrast just try to make money, not act on behalf of the greater good. And they have trouble seeing how this pursuit of profits can lift the general standard of living. The idea is too counterintuitive. So we’re always up against a kind of in-built suspicion of markets. There’s always a temptation to believe that markets succeed by looting the unfortunate.”

As he speaks, Mr. Becker appears utterly at ease. He wears loose-fitting clothes and slouches comfortably in his chair. His hair, wispy and white, sets off his most striking feature—penetrating eyes so dark they seem nearly black. Yet those dark eyes display not foreboding, but contentment. He does not have the air of a man contemplating national decline.

 I read aloud from an article by historian Victor Davis Hanson that had appeared in the morning newspaper. “[W]e are in revolutionary times,” Mr. Hanson argues, “in which the government will grow to assume everything from energy to student loans.” Next I read from a column by economist Thomas Sowell. “With the passage of the legislation allowing the federal government to take control of the medical system,” Mr. Sowell asserts, “a major turning point has been reached in the dismantling of the values and institutions of America.”

“They’re very eloquent,” Mr. Becker replies, his equanimity undisturbed. “And maybe they’re right. But I’m not that pessimistic.” The temptation to view markets with suspicion, he explains, is just that: a temptation. Although voters might succumb to the temptation temporarily, over time they know better.

“One of the points Secretary Paulson made earlier today was how outraged—how unexpectedly outraged—the American people became when the government bailed out the banks. This belief in individual responsibility—the belief that people ought to be free to make their own decisions, but should then bear the consequences of those decisions—this remains very powerful. The American people don’t want an expansion of government. They want more of what Reagan provided. They want limited government and economic growth. I expect them to say so in the elections this November.”

Even if ordinary Americans still want limited government, I ask, what about those who dominate the press and universities? What about the molders of received opinion who claim that the financial crisis marked the demise of capitalism, rendering the Chicago school irrelevant?

“During the financial crisis,” he replies, “the government and markets—or rather, some aspects of markets—both failed.”

The Federal Reserve, Mr. Becker explains, kept interest rates too low for too long. Freddie Mac and Fannie Mae made the mistake of participating in the market for subprime instruments. And as the crisis developed, regulators failed to respond. “The Fed and the Treasury didn’t see the crisis coming until very late. The SEC didn’t see it at all,” he says.

“The markets made mistakes, too. And some of us who study the markets made mistakes. Some of my colleagues at Chicago probably overestimated the ability of the Fed to smooth disruptions. I didn’t write much about the Fed, but if I had I would probably have overestimated the Fed myself. As the banks developed new instruments, economists paid too little attention to the systemic risks—the risks the instruments posed for the whole financial system—as opposed to the risks they posed for individual institutions.

“I learned from Milton Friedman that from time to time there are going to be financial problems, so I wasn’t surprised that we had a financial crisis. But I was surprised that the financial crisis spilled over into the real economy. I hadn’t expected the crisis to become that bad. That was my mistake.”

Once again, Mr. Becker reflects. “So, yes, we economists made mistakes. But has the experience of the past few years invalidated the finding that markets remain the most efficient means for producing economic growth? Not in any way.

“Look at growth in developed countries since the Second World War,” he continues. “Even after you take into account the various recessions, including this one, you still end up with a good record. So even if a recession as bad as this one were the price of free markets—and I don’t believe that’s the correct way of looking at it, because government actions contributed so greatly to the current problem—but even if a bad recession were the price, you’d still decide it was worth paying.

“Or look at developing countries,” he says. “China, India, Brazil. A billion people have been lifted out of poverty since 1990 because their countries moved toward more market-based economies—a billion people. Nobody’s arguing for taking that back.”

My last question involves a little story. Not long before Milton Friedman’s death in 2006, I tell Mr. Becker, I had a conversation with Friedman. He had just reviewed the growth of spending that was then taking place under the Bush administration, and he was not happy. After a pause during the Reagan years, Friedman had explained, government spending had once again begun to rise. “The challenge for my generation,” Friedman had told me, “was to provide an intellectual defense of liberty.” Then Friedman had looked at me. “The challenge for your generation is to keep it.”

What was the prospect, I asked Mr. Becker, that this generation would indeed keep its liberty? “It could go either way,” he replies. “Milton was right about that.”

Mr. Becker recites some figures. For years, federal spending remained level at about 20% of GDP. Now federal spending has risen to 25% of GDP. On current projections, federal spending would soon rise to 28%. “That concerns me,” Mr. Becker says. “It concerns me a great deal.

“But when Milton was starting out,” he continues, “people really believed a state-run economy was the most efficient way of promoting growth. Today nobody believes that, except maybe in North Korea. You go to China, India, Brazil, Argentina, Mexico, even Western Europe. Most of the economists under 50 have a free-market orientation. Now, there are differences of emphasis and opinion among them. But they’re oriented toward the markets. That’s a very, very important intellectual victory. Will this victory have an effect on policy? Yes. It already has. And in years to come, I believe it will have an even greater impact.”

The sky outside his window has begun to darken. Mr. Becker stands, places some papers into his briefcase, then puts on a tweed jacket and cap. “When I think of my children and grandchildren,” he says, “yes, they’ll have to fight. Liberty can’t be had on the cheap. But it’s not a hopeless fight. It’s not a hopeless fight by any means. I remain basically an optimist.”

Do it your way

A little while back I read an article about Brett Favre, quarterback now for the Vikings but for most of his career the star of the Green Bay Packers. It was a very personal profile. More recently there was an article about Ringo Starr, who will soon turn 70. Ringo of course was the drummer for the Beatles. (Trivia: he was not the original drummer! Do you know who was?). After reading both I had similar reactions and thought I’d write about it.

Both clearly had much potential – potential that was fully and famously revealed by each in their own unique ways.

They were similar in some respects: both grew up in families and surroundings of modest means. Ringo perhaps more so but Brett didn’t have any silver spoons either.

They had different influences though. Ringo said Liverpool was rough and at times violent and unsafe. But he has clear memory of loving and kind people, in his family and from his neighborhood growing up.

Brett had an excessively tough father who was his high school football coach and life long (tor)mentor. His father was critical and unforgiving well into Brett’s adult life and professional career. In one famous incident, he criticized his son’s play and abilities despite Brett having the best year of his career and having just won the league Most Valuable Player award for the 3rd time.

What does this say about revealing one’s potential? It doesn’t matter if you are loved or ridiculed and it helps to start out by growing up poor and then striving hard enough to be successful beyond expectations?

I don’t think so. Something else that they had in common seemed more like the key.

Brett did not have good football passing mechanics. In fact they were unusual and not very pretty. What he possessed was an unusually powerful arm and knack for improvisation, and he could throw the ball farther and more accurately than any rival. He said he simply loved throwing the football. Always had and still does. It is what drives him to compete despite recently turning 40 – and compete at a level that nearly took him to yet another Super Bowl in 2010. He listened to – and focused intently on – this love he had.

Ringo was not a classicly great drummer. Many have said he was the “weakest” Beatle, musical talent-wise. Of course he’s competing with the greatest song writing duo in modern music history (Lennon and McCartney) and a multi-talented artist (George Harrison) so it might be fair to cut him some slack. It’s like saying Dimaggio was only the 4th greatest baseball player – behind Ruth, Williams and Aaron.

But Ringo said he loves drumming. Always had and still does. He has for many years since the Beatles broke up put together a series of touring bands he’s called the All Starr Band (usually packed with contemporary greats from the 60’s and 70’s such as Joe Walsh, Dave Stewart, Gary Wright and Edgar Winter, and from more recent times such as Ben Harper, Joss Stone, Don Was and Benmont Tench). The reason why all these great musicians want to play in his All Starr bands is because Ringo is so fun to play music with. He brings out the best in them because his drumming is there to complement and enhance – not overshadow – his band mates’ playing and singing. He’s considered a pioneer of this style. I’m sure John, Paul and George felt this when they were writing, creating and playing all those great Beatles tunes together. His love of drumming and the role it plays in making great music with great musicians drives him, despite the fact that he is soon going to turn 70 years old.

What’s the lesson? One is a common one: do what you love and follow your passions. Potential and success are often revealed if you do. An important corollary seems to be: don’t worry if how you do what you love is “flawed” or “different” somehow. If Brett and Ringo had let that stand in the way, think of all the potential greatness we would have missed.

Predictive Analytics: How it Works (#2)

In the first post about predictive analtyics we learned about the essential building block of predictive analytics: the predictor. This is a value calculated for each entity (say, a customer) who’s actions or behaviors are to be predicted – for instance the recency, in months, since a customer’s last purchase.

Prediction power is enhanced if you use more than one predictor at a time. In doing so you are creating a model. Models are the heart of predictive analytics. In this post I’ll discuss how you can find the “best” predictive model. I put “best” in quotes because from a practical standpoint, unless you assume unlimited time and resources you may be best off finding a model that improves your results (e.g., reduction in customer churn) over previous experience. Today there is available very powerful modeling software and well-trained and talented statisticians, but the number of variables to consider in any predictive model (across demographics, transactions, behaviors) can be extremely large making determination of the “best” model cost prohibitive.

Fortunately, taking an incremental, continuous improvement approach can yield solid results for most any business and the promise that results will improve over time. A common tool is to develop a yield curve. For example, plotting the results of a predictive model for churn with amount of churn on the Y axis and percentage of customers contacted in a retention campaign on the X axis will show a curve the decreases to a point — i.e., up to a certain percentage of a universe of customers contacted, attrition rates will fall — but will bottom out and then move upward. Meaning that not all customers will respond to a retention campaign and you are best off contacting only those predicted to respond well. After that point, you are best leaving the balance of the universe of customers alone – either because they are not likely to churn anyway or because the predictive models say campaigns to retain them will be unsuccessful (and possibly other methods are needed – along with models that might predict how these approaches can be equally tuned to expend effort on just those predicted to be successful).

Now, although the model does not work perfectly, the socring and ranking of customers according to their likelihood to be retained provides clear guidance on how to invest in retention programs to yield the best results. It will prevent campaigns to retain customers that are too aggressive (trying to retain those that are not likely to respond positively, or wasting effort on those that are likely to stay).

There is a great deal more to predictive analytics than I’ve covered in the past two posts. But I hope one message is clear: you can gain practical improvements in marketing results or other customer touch points through the use of analytics that don’t need to be complex (at least to start) nor perfect. Commitment, willingness to experiment and continuous improvement are what’s really required.

Thanks for reading and I’ll look forward to comments.

Where do we want to go?

This is the third in a series on developing a “practical strategy”.  So far we’ve looked at two of the five basic questions that can be used as a framework for building and testing the strategy of an organization. The last three questions we’ll cover in this post.

The first two questions are “what business are we in?” and “where is the market going?” These questions serve to both build upon the vision which was developed (described in the first post ) and to test it in a practical way. The final three are “Where do we want to go?”, “How will we win?”, and “How will we get there?”. If the vision and the first two questions are for framing and testing then these last three are to useful for building out the details and getting ready to launch.

Picking up from the last post where the market landscape and strategic choices were developed the next step is to make those choices and identify the possible outcomes in order to be precise with the strategy. It is easy to be wishy-washy (sorry for use of such a jargon-laden term!) or settle for being too-high level. After all this is just the “strategy” and details can come later, right? Not right! Sure more details will come later in iterative execution phases and over time but forcing out specificity at this point is very valuable. Otherwise you can easily develop an elegant and logically sound strategy that still fails in the real world.

For example, while developing long term strategy at CheckFree, the leading provider of outsourced online banking and bill pay to U.S. financial institutions, the market — of both consumers who used it and the banks who provided it to them — was rapidly coming to accept such applications as mainstream (a classic sign of  market “maturity”). But there was clear difference in the states of the two key market segments that made up the value chain for CheckFree. One segment, the bank market, was more mature and the competition was likely to force price into being a key competitive issue. Consumers, the other key segment, were still in the early stages of mainstream adoption. Plus a key variable was not simply adoption (what % of households were paying bills online) but penetration (what % of all household bills were being paid online — a sort of share of “bill payment wallet”).

The adoption metric was headed to and beyond 15% (and was at 30% at the leading bank in the U.S.) but the share of wallet was less than 5%. A clear choice on “where do we want to go?” was made: focus on the consumer. Clearly it seemed that there was both a significant unanswered challenge – how to get adopting households to pay all of their bills online through their bank — plus significant upside (increasing penetration offered a rich pool of latent, recurring revenue).

Turning to “how will we win?”: as with all of these questions they are best used in companion and with one another in an iterative manner. For instance, if we had chosen, instead, to give primacy to the bank market’s needs and compete on dimensions of traditional IT outsourcing — such as low cost, scale and quality — we felt we could win yet these were more mature areas and risk of commoditization was high (and price being a likely, and recurring, battleground). When we thought through our choice to compete with a consumer-focused strategy we were betting on this “pulling” through the banks and positioning us as clearly differentiated and preferred option in any competitive situation. The thinking was: if we could be the world-class experts in consumer adoption we were purposely choosing a more difficult yet competitively defensible path. We believed this competitive stratgegy would further raise switching costs and lock in market share with banks who chose us — and serve to help us avoid competing on price.

The last question, “How will we get there?” seems a little anticlimatic. This is by design. As I’ve mentioned previously a risk in developing strategy (amongst many!) can be that it is not practical (e.g., too high level, non-specific, hedges or is wishy-washy). If we’ve been thorough in answering and iterating through the vision and the first four questions the we’ll combat the impractical through the explicit development of a plan to accomplish the chosen strategy. The plan must include a clear set of discrete steps, time-phased and integrated across necessary functional or other organizational boundaries, assign specific accountable owners, and designate expected outcomes which become goals and metrics upon which to review and judge progress of the strategy execution and success of its outcomes. Wrappered around this methodology for developing practical strategy should be some sort of on-going strategic review, discussion and revision process (which I might blog about some other day). I like developing a 2 to 3 year strategy and then reviewing it every quarter on a rolling basis.

That’s it. I would welcome Comments from friends of my blog and from those just passing by and here for the first time.    Randy

Practical Strategy

True to my intent, I have written somewhat eclectically about discovering potential, looking ahead, thinking critically and objectively and wanted to get back to a business-oriented mode for a few posts.

Many organizations (and individuals!) are scratching their heads trying to figure out how to deal with our current, unique and challenging circumstances. But they are also trying to plan for the future (with optimism that “this too shall pass” and wanting to be ready for the next set of opportunities and challenges). I applaud any form of optimism! And so, I have a practical tool for use in getting some strategic thinking and planning done, which seems especially useful in these times as an overdone, over-wrought approach will be overkill when “directionally correct” might be all that is needed until some of the uncertainties and issues of the current time pass. I would argue though that even in more certain times, the approach I’ll write about in this and subsequent posts is useful and gets most any organization beyond being stuck in the present and looking ahead with a critical and purposeful eye.

The approach I advocate is squarely focused on getting a specific vision and strategy down on paper — and will serve as a very powerful tool to also use in successive iterations (a critical component of the strategy process as a one-time vision and strategy exercise might not even be worth the effort).

What I also like about this approach is that it uses language and key words that were not “strategy double-speak” and won’t put off the executives and other participants who often tune out of a strategy exercise because of preconceived notions about strategy, consultants, etc. (i.e., “too complicated”, “too high level”, “not executable”).  

The approach also ensures completeness without being overly complex and strenuous as a management team exercise. I often say when about to embark on this process that I want the team to “work out”, not “wear out”, their thinking capacity.

I call it Practical Strategy because of the definition of the word “practical”: \ˈprak-ti-kəl\, adj., useful and no-nonsense.

There are two basic steps to the process, with the second working through and answering a series of questions. I’ll summarize the first step in this post, and then work through the second part and the questions in a couple of subsequent posts.  The first step is to articulate a long range vision for the business. This can sound too simple on the surface. A good vision is not just a statement that gets put onto posters, inside annual reports, or laminated on cards handed out to employees and customers. Getting it right is hard work but needn’t be a too-long effort. It must be clear, specific and define the place for the business to aspire reaching (but with no set time horizon). A test will be that a good vision statement can be decomposed and set the boundaries for and guide the answering of the subsequent questions in this exercise. If it fails this basic test, the vision is not practical and should be refined.

I’ll give an example. The practical vision for Domino’s Pizza: “Make and deliver a fresh, hot, high-quality pizza to the customer’s home within 30 minutes or less.” Several things:
– this makes clear what value is to be delivered – fresh, hot and high-quality. Any one of these may be sufficient, why choose all three? Knowing why make subsequent decisions about business model, operational strategies and so forth quite clear

– a key differentiator is articulated – 30 minutes or less (and in their advertising they backed this with a guarantee-or-free offer)

– a key operational characteristic is defined – to the customer’s home. If taken literally (which they did), this kept them focused on the home delivery model and away from building sit-down or walk-in or stores, and has clear direction for their location and logistics strategies. 

– even the omission of something can be useful — the vision only mentions pizza. No mention of other products or open-ended placeholders for other foods or items that could be thrown in. It is about pizza, plain and simple.

Not all businesses are as simple as Domino’s. Or is it that not all businesses go to trouble of defining their businesses in such clear and practical ways? I’m sure the answer is in the middle somewhere but I will argue it falls toward the latter.

As always I welcome your feedback and look for a post soon on the first of the questions that must be answered to complete the rest of the Practical Strategy process.