Nonlinear Thinking

Focusing on a Cup of Joe

Perhaps it started with the departure of Howard Schultz from the day-to-day involvement in the company's operations and direction or maybe the company just grew too fast and got too big, but it also appears as if Starbuck's is suffering from business model atrophy as they have evolved away from some of the core philosophies and technologies that were the platform for their success.  I might argue that closing 600 stores, less than 4% of their global population, is marginally material.  However, I don't believe Starbucks has ever announced a store rationalization of this scale.  According to this New York Times story, it appears that the train has come off the track and Schultz has returned to engineer the company back to its core strategy and tactics.

Starbucks wants to get back to its roots to help turn around its ailing fortunes. It brought back the pioneering chief executive Howard Schultz to run the coffee chain day to day, and it has introduced a new blend, Pike Place Roast, that harks back to the location of its first Seattle store.

Yet for all the new marketing efforts, Starbucks’s biggest mistakes and greatest challenges boil down to three words: location, location and location.

This week, in an announcement that surprised even analysts who have grown accustomed to bad news from Starbucks, the company said it would shutter 600 “underperforming stores,” and significantly scale back plans to open new outlets.

The bitter economy is hurting countless retailers and restaurant chains. But the prospect of Starbucks closing stores, rather than opening them, is different. The company has long been known in the world of commercial real estate for its expertise at selecting prime locations and its fearlessness in establishing almost comic ubiquity in some neighborhoods.

Starbucks would not comment for this article. But it appears that the company strayed from the exacting real estate science that it had perfected and guided it through its first expansion wave.

One also has to wonder if the current state of the U.S. economy is making a serious impact on same store sales and whether Starbucks is merely carving away with the lowest performing sites.  If so, this may be a practice that gets a workout over the next several years.

Apple Stock Anyone?

Not yet sure where this move will fit in the pantheon of really bad strategic blunders, but Microsoft's decision to proceed with the announced retirement of Windows XP has a real "new Coke" feel to it.

Implementing a move that's been planned for months, Microsoft will no longer make Windows XP available to large computer makers, such as Dell, Lenovo, or Hewlett-Packard, or to software retailers, after June 30. It will continue to offer the OS to "system builders," that is, small, independent PC makers, through July of next year.

This move will force many current users of XP to migrate to Vista or wait until 2010 for the arrival of Windows 7. As the much maligned Vista has engendered a legion of XP loyalists, this would seem to bode well for Apple. 

Concurrently, we have this new survey from Yankee Group on Apple's increasing penetration into the corporate world.

Nearly 80% of businesses have Macs in-house, nearly double the percentage that said they had users running Mac OS X two years ago, a research firm said today.

Twenty-one percent of the firms surveyed reported that they had deployed more than 50 Macs. "This isn't Mickey Mouse; it's not just onesies and twosies anymore," said Laura DiDio, a research fellow at Yankee Group Research, who conducted a survey of more than 700 senior IT administrators and C-level executives.. "Apple's graduated into the big league."

DiDio was impressed with the growth of Macs in business, considering that Apple Inc. has put little to no official effort into that part of the market. "This isn't a tidal wave, but it's certainly a sustained trend," she said. "Apple has a beachhead in business. Where it once had just 1-to-2% market share in corporate, now they're up to 8-to-10%," DiDio added.

While you can understand Microsoft's rationale for following through on the original decision, the problems with Vista have been more than adequately documented and the criticisms continue to this day.  Microsoft used to be able, prior to Apple's resurrection and the mainstreaming of open source, to force these kinds of decisions down the throats of their users with impunity. Not anymore.  I think the next few years could be real interesting for the PC/Mac platform war.

The Fine Art of Storytelling

I am a HUGE believer that every enterprise needs to be able to tell their "story" to their target markets.  It has been fundamental to every successful corporate, market or business unit strategy in which I have been involved.  An email from Tim Ogilvie of Peer Insight provided such an elegant and concise summary of the importance of knowing and telling your story, I had to pass it along.

Here’s another business model secret I truly believe in: The story is part of the business model. 

I’m trained as an engineer, so this lesson took longer to sink in than others.  But storytelling showed up again and again in our research as a key success factor.

In fact, here are three essential elements of a modern business model 

1. Based on customer priorities

2. Specifies the design for three value streams

· Physical flow of goods

· Information flows      

· Financial flows

3. Presents a narrative; tells a logical story of

· Who your customers are

· What they value

· How you make money providing that value

Look at element 3, the narrative, and think about the business models you admire.  How simple is the story of FedEx, for example, or eBay? The first two elements get all the attention from business model explorers, but the third one has to be there, too.

I can not stress it strongly or often enough. If you don't have a compelling story to tell your market, you have a real problem. If you simply don't know how to tell your story, it's time you learned. Your competition already has.

Successful Strategy Execution

Anyone who has ever participated in the creation of a strategy, whether corporate, business unit, go-to-market, sales, or marketing strategy, has experienced the disappointment of the failed execution of their strategy.  Far too often, the brilliant thinking becomes disconnected from the tactical implementation of the basic platforms and initiatives necessary to achieve the strategy’s goals and objectives.

The June issue of the Harvard Business Review has a nice article on The Secrets to Successful Strategy Execution.  Authored by Booz Allen executives Gary Neilson, Karla L. Martin and Elizabeth Powers, the article is based on a very wide-ranging survey the authors undertook to uncover the fundamental traits of organizational effectiveness.  The survey identified 17 traits and the June article focuses on the top five and discusses why they are critical to successful execution of strategy.  Briefly, their secrets, ranked in order of importance, are:

  Everyone has a good idea of the decisions and actions for which he or she is responsible.

Blurring of decision rights tends to occur as a company matures. Young organizations are generally too busy getting things done to define roles and responsibilities clearly at the outset. And why should they? In a small company, it’s not so difficult to know what other people are up to. So for a time, things work out well enough. As the company grows, however, executives come and go, bringing in with them and taking away different expectations, and over time the approval process gets ever more convoluted and murky. It becomes increasingly unclear where one person’s accountability begins and another’s ends.

   Important information about the competitive environment gets to headquarters quickly.

Headquarters can serve a powerful function in identifying patterns and promulgating best practices throughout business segments and geographic regions. But it can play this coordinating role only if it has accurate and up-to-date market intelligence. Otherwise, it will tend to impose its own agenda and policies rather than defer to operations that are much closer to the customer.

   Once made, decisions are rarely second-guessed.

Whether someone is second-guessing depends on your vantage point. A more senior and broader enterprise perspective can add value to a decision, but managers up the line may not be adding incremental value; instead, they may be stalling progress by redoing their subordinates’ jobs while, in effect, shirking their own. 

   Information flows freely across organizational boundaries.

When information does not flow horizontally across different parts of the company, units behave like silos, forfeiting economies of scale and the transfer of best practices. Moreover, the organization as a whole loses the opportunity to develop a cadre of up-and-coming managers well versed in all aspects of the company’s operations.

   Field and line employees usually have the information they need to understand the bottom-              line impact of their day-to-day choices.

Rational decisions are necessarily bounded by the information available to employees. If managers don’t understand what it will cost to capture an incremental dollar in revenue, they will always pursue the incremental revenue. They can hardly be faulted, even if their decision is—in the light of full information—wrong. 

Four of the five “secrets” the authors discuss balance on the free flow of information up,down and across the organization.  As the social network phenomena becomes established in organizations, informal communication channels will be broadened and, in a sense “formalized”, to facilitate the necessary information flow for more successful strategy execution.

Exogenous Factors = Deadly Projectiles

I imagine that most readers have seen those "demotivation" posters displayed proudly in someone’s office or as part of an Internet slide show.  This one seemed particularly apropos for the themes discussed here.

The company responsible, Despair.com, has an entire line of "demotivators" and even allows you to create your own posters on their Web site.