Tuesday, September 24, 2013

Strategy Before Tactics

An MBA student asked me not long ago, if I knew of companies that developed or updated strategies on a regular basis. He went on to say that he was in charge of providing IT support for his organization and when asking for the strategic direction of the company he was told “to increase profit by X% in the next operating period.”

This was clearly not a strategy but an operational goal. Operational goals are almost always addressed with tactical solutions.

The longer an organization has been in existence, the less likely a regular strategic planning process will exist. Leadership will recognize changes in the environment, new financial goals, changes in operation procedures, new challenges and competition. Almost always tactical plans are developed to address the market changes and financial goals. 

Tactical plans will include pricing structure changes, development of new products, new human resource programs and new operational procedures. These plans can be very intricate and very sophisticated. For example to increase revenues an organization might deploy a dynamic pricing program that provides different pricing for different consumers based on the perceived value to the customer at a specific time. This is a very sophisticated pricing program but doesn’t qualify as a strategy. In fact the tactic might be at odds with the intended strategy.

For example, if a company had a goal to market a product that would develop a deep loyalty with customers that was based on image, branding and the ongoing relationship with its consumers, a dynamic pricing program might be viewed as opportunistic by some consumers and actually work against the overall strategy.

A good example of this is when Doug Ivester, former CEO of Coca Cola, mentioned that Coke might consider using vending machines that would charge a higher price as weather temperatures increased.

This move would not be in keeping with the mission:
            1) To refresh the world,
            2) To inspire moments of optimism and happiness and
            3) To create value and make a difference.

While this pricing move wasn’t deployed, the fact that Ivester mentioned the possibility showed he was more of a tactical thinker rather than strategic.  Here, Ivester forgot the importance of Coke to the consumers and resulted in a huge negative reaction by the media and the market even though the program was never implemented.

Coca Cola had another instance where tactics and strategy were confused. With the introduction of the New Coke, Coca Cola forgot the history and the relationship with the market.  By eliminating the original coke flavor and introducing the New Coke, executives did not consider the value of the long-term relationship of customers with the original Coke flavor.

The vision, outlined above, should be the most important consideration in strategy development. Tactical considerations should then follow.

The overriding consideration overlooked in both of these actions by Coca Cola was the relationship of the market with the brand that had been a part of the lives of individuals during the good and bad times of the twentieth century.

Interestingly, both of these tactical moves might have been successfully implemented if tactical solutions had been designed to fit well with the overall strategy. For example, if vending machines had been deployed to give discounts when temperatures fluctuated, the company could have maximized margins and still provided the consumers with a positive view of the company. With the introduction of the New Coke, keeping the original flavor would have provided a means of satisfying the psychological mystique associated with the founding brand while allowing consumers to try the new flavor.

Remembering to put strategy before tactics requires discipline to periodically review the company’s mission statement and overall strategy and to make certain tactical moves are in alignment with the firm’s strategy.

To insure that this process is employed an organization should consider requiring a strategic plan review annually and make sure that overall strategies recognize potential paradigm shifts and still are in alignment with the vision of the organization. Once the strategy is approved then all tactical decisions should be in alignment with the strategy.

It should be noted that there can be sub strategies that also must be in agreement with the overall vision and strategy. Tactical decisions must then be in alignment with the sub strategies.  A retailer, for example, may have an overall strategy to maximize market share and profitability. Strategies for price, distribution, product and promotion can then be developed. For price the retailer might choose Every Day Low Pricing, for product the retailer might choose to mix national and private label products and so on for promotion and distribution sub strategies.

Tactics for pricing would include pricing mix for national and private label brands that would maximize sales and procurement (payments made by national brands for shelf space and promotional support) revenues. Clearly it would be important to insure that while tactics to improve the two categories of revenue the retailer did not endanger the EDLP or market position strategies.

When determining if a new program fits well with the overall strategy of the company, ask the following questions
  • 1.  Profitability/market acceptability  - will the product generate a profit and a market?
  • 2. Accreditation requirements – Does the product meet industry and legal standards?
  • 3. Length of project – Can the product be introduced in an acceptable time frame?
  • 4.    Accommodate systems – Does the new product make use of current systems or will new ones need to be developed?
  • 5.    Fit Image – Does the product fit the image the firm wishes to project?
  • 6.    Resources – is the new product resource and capital intensive?
  • 7.    Gateway capacity – Does this product lead to the possibility of new products or businesses being developed?
  • 8.    Negative Gateway capacity – Does this product have the potential of damaging other aspects of the operation?
  • 9.    Customer acceptance – will the customer accept this product over others offered in the market?

If any of theses questions can’t be answered favorably further investigation into new programs should be considered.

Tuesday, September 10, 2013

Capitalizing on the Value of Newspapers

 I teach both undergraduates and MBA students at the University of Houston. Both groups have been assigned a Harvard Business case studying the Paywall at the New York Times. This is an interesting case and shows the challenges faced by newspapers that are trying to survive in a digital media world.

Interestingly, the case focuses on the rate charged for the print form of the newspaper vs. the digital edition. The digital edition is less expensive and the print plus the digital edition is less than the print only newspaper.

The case also focuses on the penetrability of the Paywall. Some social networking sites have access to NYT content free.

Finally, the case looks at the challenges to transition from print to digital and perhaps most importantly the value created by the newspaper.

As I have watched newspapers address these challenges, it seems that almost universally there has been little attention paid to the value created by newspapers and newspaper journalism.

There is no question that the newspaper creates value for readers and that value is translated into value for advertisers. Arriving at the precise value of newspapers or newspaper journalism requires a fundamental understanding of the segments of the market that are served.

For each segment, the newspaper organization is “hired” to perform certain functions. For example, some newspaper readers want a credible news source that provides in-depth coverage. Others look for a comfortable source of all types of information to be enjoyed early in the morning with coffee or in the evening to “wind down”.

A more extensive list of jobs a news organization is “hired” for includes:
1.     Immediate updates of certain news events,
2.     To provide information on developing stories and informed commentaries,
3.     To provide investigative and “Fourth Estate” reporting,
4.     To provide information on entertainment,
5.     To provide information and cost comparisons for family budgeting,
6.     To provide a sense of being knowledgeable of current events,
7.     To provide a way of understanding how society is changing,
8.     To provide entertainment,
9.     To act as a learning tool,
10. To act as a repository for important, accurate information.
11. To provide advertisers with a reliable way to deliver sales messages to their consumers.

If news organizations are required to do these things, why are they having such a difficult time putting together a strategy that assimilates print and digital capabilities in a cohesive manner that can be marketed effectively?

From where I sit it appears that there is no overarching strategy that addresses the jobs that newspapers are “hired” to do. Rather, the approach has been reactionary to competition and splintered with respect to addressing challenges. In other words the strategy has been a series of actions taken to address various symptoms of a paradigm shift that has a digital format.

Most of the reaction has been to address revenue shortfalls. Newspapers created responses for Internet programs that attacked the classified and retail advertising categories. They then responded to the significant falls in circulation. Newspapers now have a plethora of tactical answers for the various digital programs that impact their businesses but they don’t typically have an overarching strategy.

I believe that there is still time to develop a strategy for newspaper organizations. The first step is to develop a more complete list of jobs a newspaper organization is “hired” to do. This list should come from the readers and advertisers NOT newspaper employees. The questions asked of the readers and advertisers should focus on jobs they need done rather than jobs that newspapers perform.

This list should then be prioritized with the items appearing in most of the customer segments being given the highest priority.

Next this list should be categorized by the method (digital or analog) that can perform the job with the greatest efficacy.

A business plan can then be constructed that allows a newspaper organization to create value for their collective audiences. This business plan can be the basis for creating a marketing strategy that is based on synergistic products that create value.
This line of value creating products will help define distribution, pricing and promotion strategies.

This approach will also help newspaper organizations understand what services need to be transitioned to a digital mode and how that transition can be accomplished.