“Strategy is all about choice,” says Marketo CMO Sanjay Dholakia.
Sanjay, a former McKinsey strategist and a master marketer, was referring back to one of the axiomatic insights developed by Harvard Business School guru Michael Porter, who is absolutely right. The essence of strategy is about choosing what we are going to do, thus making the right choice among a set of alternatives.
But the most essential and difficult part of strategy is about answering the reverse question, “What we are not going to do?”
Many high-achieving executives and their teams are programmed to attack new markets with innovation and strategies to drive success. However, the same leaders find it hard to choose to stop doing something and actually stick with the decision.
Procter and Gamble’s former CEO A.G. Lafley and strategy consultant Roger L. Martin wrote an insightful book called Playing to Win, where they describe how they implemented strategy at P&G using Michael Porter’s foundational principles regarding choice and trade-offs. They define strategy as the need to win. And to win, they say, one needs to make clear choices across five areas:
- What is our winning aspiration?
- Where will we play?
- How will we win?
- What capabilities must be in place?
- What management systems are required?
I want to offer a slightly different way to think about this.
After aligning around a common business vision, I believe that the most important question to ask is, “Where will we not play?” In other words, where are we going to stop investing scarce human capital and innovation capital in order to maximize our focus and chances for success?
What’s a good framework for saying “no”? Let’s consider the following criteria to answer this question:
1. Saying No by Product Market Fit
Before hitting the gas on sales and marketing in any segment, we need make sure to have true product-market fit. Do customers truly yearn for the differentiation our products offer? If they do not, walk away and say no to any further sales requests.
When I worked at Cast Iron Systems, our initial struggles to clearly answer this question hurt our ability to scale. Our fundamental product differentiation was speed and simplicity. We offered a plug-and-play appliance that connected business applications within days, not months. We enjoyed some early success with Fortune 500 clients in a number of one-off scenarios. So what did we do? We naturally doubled down and created a plan to go after the Fortune 500 market. However, it turned out we were trying to sell the equivalent of an iPod to buyers looking for large, professional-grade stereo systems to run their concerts. The Fortune 500 did not fundamentally yearn for our product differentiation of speed and simplicity – not when compared to other capabilities that they wanted, such as feature-breadth, large volume performance, enterprise-grade security, etc., that traditional middleware vendors provided. It was only when we said no and walked away from this market to focus on the SaaS market – one that yearned for speed and simplicity – that we achieved success.
2. Saying No by Buyer Type
Tony Nemelka, who heads up IBM Software in Japan, always reminds me that there are no markets, there are only buyers. “And one needs to really understand truly who the buyer is and align a set of product capabilities that simplify their lives and solve real problems,” he says. Amen, Tony!
The converse of this adage applies to companies that target multiple buyer profiles with the same product offering. For example, a software platform company may decide to offer variations of its product for so-called line of business buyers, such as sales, HR, and services as well as IT buyers. This can get dicey. A few established companies have been reasonably successful with this approach. But it can be disastrous for a growing company with a small product portfolio. Imagine the challenges faced by a generic sales team that has to learn how to speak contextually and demonstrate its solution uniquely to each segment? It typically does not end well. The more proven approach for growing companies would be to align a set of capabilities – home-grown and acquired – and target a single customer.
Nortel Networks’ acquisition of call center company Clarify in the late 1990s was a classic failed example of what can go wrong. Nortel bought Clarify for $2 billion; barely a year and a half later, Nortel sold Clarify for 10 cents on the dollar to Amdocs. The problem: Clarify’s buyer was a line-of-business executive and very different from the profile that Nortel’s technology sellers were accustomed to selling to. “Nortel had a sales force that had no ability to sell application software," said Laurie Orlov, then research director at Forrester Research.
Contrast that example with IBM, which walked away from the application software market in the early-to-mid-90s; IBM’s software head Steve Mills thought it made more sense for Big Blue to focus on one buyer type – the Fortune 500 CIO – and align a set of product capabilities and services to make the CIO successful. It worked marvelously well, and for over 15 years, IBM’s acquisitions and home-grown innovation adhered to the goal of serving the CIO (interestingly, IBM has aggressively come back to the application software market in the past five years).
3. Saying No by Leadership Position
I’ll be Captain Obvious here and state that the goal of any company is to win the battle for the minds of the buyer and establish itself as one of the top brands in its market. This is obvious, but never easy.
Legendary marketers Al Ries and Jack Trout write about the Law of Duality in their book, “The 22 Immutable Laws of Marketing.” In the long run, they note, consumers associate with two main brands for every product category. Google and Apple for phones. Coca-Cola & Pepsi for soda. Nike & Reebok for shoes. Crest & Colgate for toothpaste. This is not true for all categories, nor does it mean that marketers in the No. 3 brand should stop working. However, the key takeaway is that senior management should always honestly evaluate a company’s current market share in any market and the potential to become No.1 or No. 2.
And sometimes, the best decision is to say no to a particular market or segment if they can’t reach this potential over the long run. GE’s former boss, Jack Welch, embodied this approach in the 1980s and 90s with his famous “No. 1 or No. 2” strategy. One of Welch’s primary leadership directives was that GE had to “fix, sell, or close” any business where it was not first or second in the market and did not have the potential growth opportunities to get there. Welch applied this principle to sell off $15 billion worth of GE-owned businesses, ranging from housewares to mining operations.
At the same time, GE spent $26 billion to acquire companies which were either market leaders or had the potential to reach the top.
4. Saying No by Company DNA
A company’s culture establishes its sense of purpose, core values, and fun. It also establishes its ability to successfully serve a market segment. Broadly speaking, a company’s DNA is primarily either enterprise-centric or consumer-centric. Problems crop up when companies refuse to recognize their dominant gene and attempt to equally participate in both markets.
HP struggled with this question for years and couldn’t decide whether it was a consumer-centric or enterprise-centric brand. That led to confusion and cost the company dearly. HP ultimately reorganized into two separate entities – a strategy that significantly improves its chances for future success. By contrast, Cisco more quickly recognized its corporate DNA and sold or shut down its consumer businesses to concentrate on doing what it does best.
So there you have it, four strategic options to consider and evaluate to answer the question, “What should we not do?” Your answers and their follow-through may be more crucial to your business’s success than any other decision you face.
Remember that strategy is all about choice. As Jack Welch famously noted, “You pick a general direction and implement it like hell.” And as his storied career made clear, it’s up to leaders to carefully select the corporate initiatives that they want to push through.
You can toss the other stuff into the trash basket.