This isn’t a blame game! Why pointing fingers is a reflection of a company’s poor performance… [Tuesdays: Return Driven Strategy]
Miles Everson’s Business Builder Daily speaks to the heart of what great marketers, business leaders, and other professionals need to succeed in advertising, communications, managing their investments, career strategy, and more.
A Note from Miles Everson:
Have you heard about Return Driven Strategy (RDS)?
According to Professor Joel Litman and Dr. Mark L. Frigo in the book, “Driven,” this pyramid-shaped framework consists of 11 tenets and 3 foundations. When applied properly in your own business strategy, these principles will help you achieve true wealth and value creation.
Today, we’ll discuss the third tenet of RDS:
Target and dominate markets.
Continue reading to know how you can be a dominant provider of unique offerings to a specific group of customers for your brand.
Miles Everson
CEO, MBO Partners
Chairman of the Advisory Board, The I Institute
Return Driven Strategy
“It’s not our fault.”
It’s easy to put the blame on others, especially when things aren’t going as planned. After all, blaming someone or something else protects your ego, and it means you don’t have to be vulnerable.
However, according to Brené Brown, a research professor on shame, vulnerability, and leadership:
“Accountability by definition is a vulnerable process. It means me calling you and saying my feelings were hurt by this, and talking… People who blame a lot seldom have the tenacity and grit to hold people accountable… and it’s one of the reasons we miss our opportunity for empathy.”
Let’s take a look at this issue in the context of business strategy…
According to Professor Joel Litman and Dr. Mark L. Frigo in the book, “Driven,” managers of poor-performing firms can sometimes be heard to blame their woes on industry issues, poor cycles, and other unforeseen market occurrences beyond their control.
The authors say in the face of troubles, management will tend to focus on cost controls with hopes to wait out the poor cycle and contain costs as much as possible.
Here’s the thing: Many businesses do not recover from down cycles because they’re NOT cycles at all.
ACCEPTING RESPONSIBILITY
One of the ways businesses fulfill the needs of society is by producing offerings more efficiently—productive efficiency.
In this process, a firm is concerned with creating goods and services with the optimal combination of inputs to produce maximum output for minimum cost.
… and there is another way through which businesses succeed in fulfilling their customers’ needs:
By knowing what goods or services shouldn’t be created in the first place, and knowing which industries to allocate resources to and which ones not to—allocative efficiency.
Here, production is aligned with consumer preferences. This is a property of an efficient market where all goods and services are optimally distributed among buyers in an economy.
According to Professor Litman and Dr. Frigo, dominating the right markets—the third tenet of Return Driven Strategy (RDS)—is a key aspect of allocative efficiency. They believe getting out of the wrong industry is as important as knowing what offerings to produce and not to produce.
So, don’t just settle for saying:
“I’m the best in a bad industry!”
Professor Litman and Dr. Frigo say it’s a sobering experience for business leaders and marketers to realize that the source of their companies’ performance woes has never been the industry at all, but the inability to target and dominate the right one in the first place.
From Paper to A Whole Lot of Paper-based Products
Pulp and paper company International Paper (IP) is known as the largest company that produces such products in the world.
Photo from Paper to Export
Despite that, it has exhibited consistently poor-performing cash flow returns for the past 16 years.
Why?
The company’s annual report states poor cash flows are “affected by general economic conditions.” Here, you’ll see that IP’s management is blaming the industry’s condition instead of taking responsibility for the situation.
There is no doubt that the industry of commoditized paper supply is a tough one. However, Professor Litman and Dr. Frigo say product demand is also based on producing the right offerings for the right markets.
Here’s another player in the paper industry that achieved the opposite of IP’s…
Kimberly-Clark (KMB) is a multinational personal care corporation that produces mostly paper-based consumer products. Some of its brands include Kleenex, Kotex, Huggies, etc.
Photo from Twitter
With its recent annual revenues topping USD 18 billion per year, KMB is regularly listed among the Fortune 500 companies.
So… what made this company succeed?
Unlike IP, KMB saw the issues in the paper industry and recognized that consumer products businesses flourished with higher cash flow returns than those simply in paper production.
The result?
KMB started branching out into a consumer products company… and because of that, the difference in the cash flow between IP and KMB over the last 10 years is remarkable!
As KMB moved into the consumer products space with well-known brands and offerings like the ones mentioned above, higher returns followed.
What do these paper company examples show?
Managers in poor-performing companies will often cite the industry as the problem. However, it’s important to note that business leaders have a choice to not let their firms be stuck within an industry.
While it’s true that managers cannot control an industry’s economics, they can certainly control whether or not to be in that industry in the first place.
That’s why the third tenet of RDS is about targeting and dominating the right markets! To perform well, businesses must choose the right industries and change industries when necessary.
—
According to Professor Litman and Dr. Frigo, there are two ways a manager can explain a company’s poor performance in a troubled industry:
“It was a tough economic environment. Sales declined as our business fell with that environment.”
or
“Our performance suffered because we did not have the systems in place to notice the declining trends, and we were unable to act quickly enough to navigate around them.”
The first one shows the immediate response of poor-performing firms—they speak in a finger-pointing fashion. While this makes the ego feel good in the long run, blaming external forces does not adequately prepare the firm for the future.
Meanwhile, the second statement shows empowerment—it points out things that could have been done, and could be done better in the future.
In other words, high-performing managers speak in ways that lean a firm towards potential actions in targeting and dominating the right markets.
We hope you learned a lot from today’s RDS-related business case study!
Remember: When responsibility is brought internally, everyone in the firm will be empowered to make changes that could possibly avoid another failure, or better yet, take advantage of new opportunities.
Take note of this return-driven tip so you can avoid finger-pointing, and know when to take responsibility for your actions!
(This article is from The Business Builder Daily, a newsletter by The I Institute in collaboration with MBO Partners.)
About The Dynamic Marketing Communiqué’s
“Tuesdays: Return Driven Strategy”
In the book, “Driven,” authors Professor Joel Litman and Dr. Mark L. Frigo said that the goal of every long-term successful business strategy should incorporate the combined necessity of “making the world a better place” and “getting wealthy.”
That is why they created Return Driven Strategy and Career Driven Strategy―frameworks that were built to help leaders and professionals plan and evaluate businesses so they can also help others achieve their organizational goals and career goals.
The frameworks describe the plans and actions that drive returns for anyone in an organization such as independent contractors, marketers, brand managers, communicators, and other people in any field. These actions lead to the creation of wealth and value for customers, employees, shareholders, and the society.
Every Tuesday, we’ll highlight case studies, business strategies, tips, and insights related to Return Driven Strategy and Career Driven Strategy.
In planning, building, or managing brands and businesses, these strategies, case studies, and guidelines will help you choose what specific actions to take and when to take them.
Hope you found this week’s insights interesting and helpful.
Stay tuned for next Tuesday’s “Return Driven Strategy!”
Cheers,
Kyle Yu
Head of Marketing
Valens Dynamic Marketing Capabilities
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