Platt Perspective on Business and Technology

Rethinking exit and entrance strategies 5: crisis as a transition demanding challenge 4

Posted in strategy and planning by Timothy Platt on December 16, 2015

This is my fifth installment to a series that offers a general discussion of business transitions, where an organization exits one developmental stage or period of relative strategic and operational stability, to enter a fundamentally different next one (see Business Strategy and Operations – 3, postings 559 and loosely following for Parts 1-4.)

This is also my third series installment in succession to discuss single points of failure, where I divide this general form of event into two at least largely distinct categorical types:

• Operational single points of failure, and
• Strategic single points of failure.

See Part 3 and Part 4, where I offer two real-world examples of how operational single points of failure can and do arise. And I turn here to more fully consider strategic single points of failure, and with an example of how they can arise and play out.

Let’s consider a large retail business that makes a strategic decision to target a specific market demographic that they see as representing a major purchasing power constituency in the catchment area that their walk-in customers would predominantly come from. And they decide to really focus on this source of business potential and in multiple ways, including:

• How they decide what inventory to carry and at what levels,
• How they set up their store for its merchandise display,
• How they make their interior design decisions, such as selection of color themes to paint the store in, and what types and numbers of poster art and other marketing to deploy and where,
• How they want their sales staff to dress and to act,
• And even details such as what type of music to play in the store and at what volume.

This is not a made-up example; I am in fact discussing a very specific footwear store that also offers a range of clothing and accessories too. And they made a range of strategic decisions based on market data and market analysis input, some of which was developed in-house but most of which came from third party marketing intelligence sources. And this had consequences.

The specific younger customer market demographic that they in effect rebuilt their store for, and entirely for, was legitimately very important for their business. But if you looked at their potential sales customer catchment area as a whole and the full range of consumer demographics that was likely to at least try them out, this group only represented a significant minority group of who was out there. And that held both for numbers of customers involved and for their average per sale purchase totals, and for how often they could be expected to go to this store – as actual store performance results verified. To make up a number here, to put this in perspective, if this consumer demographic could be expected to bring in 38% of all potential business, judging from their own data and from data gleaned from their local competition, that is still less than half.

And the result was a whole series of operational mistakes and miscues. Consider the last of the decision points that I just listed above: what type of music to play in the store and at what volume. They knew that their one favored demographic likes loud music and of a very specific type. They decided to draw these consumers in and make them feel at home, so they blasted everyone who entered with enough high volume rock and heavy metal music so as to make any conversation impossible. So they actually did bring in people from their target demographic and members of that group did buy items and many did come back for more. But they drove out essentially everyone else and essentially any and all older potential customers than these teens and early twenties – and after they left they told all of their friends not to go there either.

• When this store made this strategic decision to focus on this one key demographic,
• After being open for a couple of years but not tremendously successfully so in an original general-market oriented incarnation,
• Their business began to deflate and collapse in from its overall loss of more wide-spread consumer interest and support.

They ended up reopening – again, and under new management, and after redesigning back to being a more general market oriented business again that sought to meet the needs of a wider consumer audience.

Reconsidering the two single point of failure categorical types under discussion here:

• Operational single points of failure arise and with time show themselves as arising from problems and disconnects in single points in operational systems, and more specifically in specific processes and operational decisions made that drive those processes in their being implemented.
• Strategic single points of failure might arise from single gaps or points of error, or from single points of inconsistency in underlying strategy, but they often functionally emerge across several or even many impacted-upon operational points, and all too often seemingly all at once. And the operational points that they simultaneously emerge from are not in general all functionally connected to each other in anything like a simple manner.
• Operational single points of failure can and often do lead to more widespread performance problems. They can lead to cascades of rapidly emerging problems and more secondary, follow-up problems. And at times they can reach a level of severity of impact and both directly and through this type of cascade of consequences so as to all but shut down a business, at least until this is all corrected. But all of this consequence is cause-and-effect, functionally connectable back to the initial operational point of breakdown at that initial, core single point of failure.
• When you cannot find an operational starting point that fairly clearly and directly presents itself as the starting point for all that has just happened, assume that this event was in large part if not entirely driven by strategic failure. And long-term correct for this as a due diligence exercise, by identifying where overall strategy has broken down so you can address that point of vulnerability for moving forward.
• And that is where change management fully enters this narrative. Recurring emergence of what for each specific instance would seem to be newly found operational points of failure, calls for a more comprehensive change management response. And I add, this recurrence probably reflects a deep underlying strategy and strategic implementation problem, where the wrong operational processes are being developed and implemented and without due diligence and risk management consideration of what could come from them. Businesses that find themselves facing strategic single points of failure, and certainly recurring ones, need systematic change management assistance and virtually by definition.

With this flow of discussion in mind, what is a single point of failure? To widen my range of examples offered here, consider these scenarios:
• You have a small aftermarket auto parts manufacturing business, and you sell essentially all that you produce to one single auto parts and supplies retailer that has multiple store fronts and that up until now has been actively reliably grabbing up everything that you can provide. And then you arrive at work on morning to find that this business is not going to renew its contract with you, that you have been expecting them to sign again, and with very little advance notice of this change. You have inventory building up but the verbal assurances from this one customer have suddenly fallen through and you have no place to send them or to sell them to or through.
• Or your customer(s) are still ready and even eager to buy your manufactured goods, but you have an overnight fire in your one main production facility, or you suddenly lose one of your key suppliers, that you obtain essential parts or materials from – and you suddenly find yourself unable to meet your next new shipment delivery obligations to your retail store customers as specified in your contracts with them.
• Or you find that a complete and large production run for your flagship product that brings in most of your revenue cannot be shipped because a key component part that you have purchased from a single source supplier, that you have built into everything in that run – is defective and for essentially the entire shipment that you have just received and used. And it is only possible to identify the problem in all of these outsourced parts when you do a final-assembly quality control test on samples of your products before shipping them out, and you find that these components to them fracture under the stress of normal use.

One of my goals here in this posting and throughout this progression of installments to this series, is to prompt you to look at your own business with a wider-ranging focus of attention, to see and understand where you might have single points of failure that you would not want to wait to find – only after the worst of their potential consequences have emerged.

I am going to conclude this flow of discussion in a next series installment where I will at least briefly discuss timing, and concurrent and sequential causality. And I will discuss the differences in practice between event analysis while an event is still actively occurring, and event analysis as a post hoc, after the fact learning exercise. And then with this discussion of single points of failure and of due diligence analysis of these types of challenge laid out, I will conclude my discussion of crisis as a cause of business transitions. Then after that I will return to reconsider growth and scalability, and business transitions in non-crisis contexts – including more intentionally planned for and sought-after transitions.

Meanwhile, you can find this and related postings and series at Business Strategy and Operations – 3 and also at Page 1 and Page 2 of that directory.

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