Straddling your Strategy

Amar Pandit , CFA , CFP

Amar Pandit

A respected entrepreneur with 25+ years of Experience, Amar Pandit is the Founder of several companies that are making a Happy difference in the lives of people. He is currently the Founder of Happyness Factory, a world-class online investment & goal-based financial planning platform through which he aims to help every Indian family save and invest wisely. He is very passionate about spreading financial literacy and is the author of 4 bestselling books (+ 2 more to release in 2020), 8 Sketch Books, Board Game and 700 + columns.

Since Michael Porter wrote about this headline concept, I begin this post with a quote of his that connects well to the headline (but this connection may not be immediately apparent to you) – “Strategy is about making choices, trade-offs. It’s about deliberately choosing to be different.”

I can’t tell you how much this topic is relevant to all of us today. I literally see it everywhere in our industry/profession and I am sure you will start seeing it in your own business and life. So, go slowly, enjoy this post, reflect on a few questions posed at the end of this post and write to me if you have any questions.

Greg McKeown in his wonderful book “Essentialism” wrote, “Imagine you could go back to 1972 and invest a dollar in each company in the S&P 500. Which company do you think would provide the largest return by 2002? Would it be GE? IBM? Intel? According to Ned Davis Research, the answer is none of the above.

Surprised. Don’t be. Because the best is yet to come.

“The correct answer is Southwest Airlines.” This is startling because the airline industry is notoriously bad at generating profits. Yet Southwest, led by Herb Kelleher, has consistently, year after year, produced amazing financial results.

Here is what they did differently – Rather than fly to every destination, they had deliberately chosen to offer point to point flights. Instead of jacking up prices to cover the cost of meals, he decided he would serve none. Instead of assigning seats in advance, they would let people choose them as they got on the plane. Instead of upselling their passengers on first class service, they offered only economy. These trade-offs weren’t made by default but by design. Each and every one was made part of a deliberate strategy to keep costs down.

Did he run the risk of alienating customers who wanted the broader range of destinations, the choice to purchase overpriced meals or the ones who wanted to fly business/first?

Yes, but Kelleher was totally clear about what the company was – a low-cost airline- and what they were not.

At first, Southwest was lambasted by critics, naysayers, and others who couldn’t believe that this approach would possibly be successful. Who in their right mind would want to fly with an airline that travelled to certain locations and didn’t serve meals, no matter how cheap tickets were?

Yet after a few years it became clear Southwest was onto something. Competitors in the industry took notice of Southwest’s soaring profits and started to imitate their approach. But instead of adopting Kelleher’s Essentialist approach carte blanche, they did what Harvard Business School professor Michael Porter terms “straddling” their strategy.

In the simplest terms, straddling means keeping your existing strategy while simultaneously also trying to adopt the strategy of a competitor. One of the most visible attempts at the time was made by Continental Airlines. They called their new point to point service Continental Lite (Remember Jet and Kingfisher both trying to do this too). They adopted some of Southwest’s practices. They lowered their fares. They got rid of meals. They stopped their first-class service and increased the frequency of departures. The problem was that because they were still hanging on to their existing business model, they didn’t have the operational efficiencies that would allow them to compete on price.

While Southwest had made deliberate trade-offs in key strategic areas (about who to serve, how to serve and what to serve), Continental was forced to sacrifice things around the margins that weren’t part of a coherent strategy. The straddled strategy was enormously expensive for Continental. They lost hundreds of millions of dollars. The CEO was eventually fired. The moral of the story: ignoring the reality of trade-offs is a terrible strategy for organizations.

This is exactly what I am witnessing in our industry today.

Founders, Business Owners and CEOs are straddling their strategies. They want to do everything. Serve Every Customer with Every Available Client Experience and Every Product.

The most common example these days is seeing firms try to do something digital while continuing to run the firm exactly the way they did earlier. The thinking here is – let’s aim for younger customers through the digital channel while our older customers can continue to be served like the way they are. Why leave any customer out? After all these younger ones are the future of our business. Let’s catch them young with digital. And Digital is cool.

But unfortunately, everything else remains the same. The firms do not make trade-offs. While saying Yes to a New Thing, they don’t say No to many other old ways of doing things. They want this and that. They want everything. This is a hodgepodge (a khichdi and that too a very terrible one) of strategies.

There is no transformation or reimagination (there is a Japanese word for this – Shinkansen Effect- a post on this soon) of the business model or way of life at the firm. Forget the business model, there is no transformation of the client experience. It’s the same old thing and additionally you now have this new thing to handle.

Thus, organizations, teams and leaders do not reap any real benefit but in fact create growth barriers and burden the team with too many inefficiencies and too many things to do. Team Members are confused. Hell, even the founder is confused. But they continue business as usual, refusing to make these hard trade-offs/choices.

A clear example of this is a firm (with 200 Crore of AUM) we saw adding Rs.24 Crore in 2.5 years across a hundred plus clients. This firm has a few capable senior people and the potential to do Rs. 100-200 Crore in that same time frame. But instead of being super focused on their core strategy they were straddling it. On the other hand, we saw a solo professional with only Rs. 10 Crore of Assets adding Rs. 32 Crore in a much shorter timeframe because he made those trade-offs about who he will serve and how. He clearly said NO to many things while saying YES to the one he wanted to execute at a world class level.

There are many such examples of business owners straddling their strategies. Some do it across products. Mutual Funds, PMS, AIFs, Insurance and so on. Some do it across Active and Passive while others do it across distribution and advisory. In fact, you might be doing it too.

In very simple words, it’s also called putting your feet in 2 boats. It’s fine when the boats are steady but guess what happens when the boats are moving ahead.

I will let you imagine this one.

The questions then are –

1. Who are you as a Firm? What do you stand for?

2. Who do you serve and what exactly do you serve?

3. Are you trying to do everything for everyone?

4. What’s your Essential Strategy for the future?

5. Are you a Straddler too? And How is that working for you?