Business Strategy Lessons From Apollo 13

Business Strategy Lessons From Apollo 13

Here are three lessons from the Apollo 13 mission that you can use to improve your strategic plan. If you’ve seen the movie Apollo 13, you might remember that early in the crisis, Gene Kranz, the flight director, gives assignments to his engineers. He cautions them to rely on data, telling everyone to “work the problem,” and not make things worse by guessing.

Throughout the crisis, the astronauts and the team in Houston study the data, perform calculations, conduct simulations, observe the results and then calculate again. They never guess when they don’t have to – they obsess over data to ensure they understand the whole problem and the entire range of possible solutions.

Creating a great business strategy requires the same obsessive attention to data. You have to base your solutions on statistically valid and comprehensive information about your company, your customers, your competitors and your industry.

Whenever you start a strategic planning process, every member of the planning team brings his own paradigms to the discussion. People make assumptions based on their experience, anecdotes and “corporate urban legends” that exist in every company.

Generally, we’ve found that 80% of these assumptions are relatively accurate, but the rest are not. That sounds like a good success ratio until you realize that if every executive is 20% wrong in her assumptions, then the team is seriously misaligned in their views of the current business situation. There’s just no substitute for good data. It level-sets the team and equips them to make decisions with facts instead of hunches.

Another great lesson from Apollo 13 is how the engineers dove into the details to develop and implement solutions. One of my favorite examples is when they realize that they need a round air filter to fit into a square filter box. They don’t waste time discussing it theoretically – they simply gather up everything that they know is available to the astronauts in the spacecraft, and they build a prototype solution. They hand-write detailed instructions about how to use a sock and some duct tape to solve the problem. Then they radio the instructions to the astronauts who implement the solution.

This situation models the second characteristic of a great strategy – your plans must be detailed enough so that everyone knows exactly what to do. Getting very specific is challenging for a visionary executive team that’s used to operating in the stratosphere. Some strategic plans fail at implementation because the strategy team doesn’t agree on who will do what by when – and with which resources.

The movie “Apollo 13” depicts one last extremely important strategy lesson. The flight director knows his team faces huge risks and that the outcome is uncertain, but he refuses to water down the goal. He doesn’t say, “Wouldn’t it be great if we could save the astronauts?” or, “Let’s try to save two out of three.” He says from the start that failure is not an option, and he deals with every situation assuming his team can overcome every obstacle. He won’t allow anyone to think otherwise. At one point, a White House representative asks the head of the Apollo program what he should tell the president. The NASA chief gives a dismal assessment, saying, “This could be the worst disaster we’ve ever faced.”

Flight Director Kranz overhears the comment, faces the two men and says, “With all due respect, I believe this will be our finest hour.” Let me ask you: If the flight director didn’t send this strong message to his team, if he showed any signs of doubt, do you think his team might have believed just a little less that they could save the astronauts? Do you think the outcome could have been different? A great strategy is bold, clear and uncompromising; it energizes your whole company around significant and vital goals. And remember, your people want to be on a winning team – your strategy must convey that you are serious about beating the competition.

So there you have it – three lessons from the Apollo 13 mission that will improve your strategic plan. Remember to base your strategy on data, develop detailed action plans, and set goals that build excitement and conviction across your company.

The Five Components of a Business Strategy

The Five Components of a Business Strategy

Can you define exactly what makes up a business strategy? Some people say no, but we think you can. In fact, we believe a valid business strategy has five components:

1.) Your company’s current or desired core competencies
2.) A description of how you will differentiate vs. competitors
3.) The industry or industries in which you intend to compete
4.) The initiatives you plan to implement in the areas of marketing, operations, information technology, finance and organizational development
5.) A financial forecast that shows how your plans will meet stakeholder requirements over the next three to five years

Let’s look at each of these components. The first component of a valid business strategy is a clear description of your company’s current or desired core competencies. You may be thinking, “Great, but what’s a ‘core competency?'” While there are many definitions.

Here’s a good one from Wikipedia: “A core competency is something that a firm can do well and that meets the following three conditions:

• It provides consumer benefits
• It is not easy for competitors to imitate
• It can be leveraged widely to many products and markets

A core competency can take various forms, including technical/subject matter know how, a reliable process, and/or close relationships with customers and suppliers. It may also include product development or culture, such as employee dedication.” For example, we could say that Southwest Airlines is a reliable airline that offers low fares. But in order to provide those benefits, it has to have certain “core competencies,” important capabilities that enable it to have low fares and to be reliable. We believe that Southwest Airlines has four core competencies that it executes so well that it regularly beats all other US airlines in terms of profitability.

These core competencies are:

• The lowest operating costs per plane
• An economical point-to-point airport network
• A fanatical culture focused on customer service and cost savings
• An ability to keep planes in the air more of the time than its competitors

Southwest airlines couldn’t offer the benefits of low prices and reliable service if it didn’t master these core competencies. What key benefits do you want to offer your customers? What core competencies do you need to master to provide them?

The second component of a valid business strategy is a description of how you differentiate vs. competitors. In our experience, differentiation is about being the best at something. This should be encapsulated in your mission statement – what are your company’s aspirations and how are you going to beat the competition? We just talked about how Southwest Airlines differentiates — what are you going to offer customers that will make them choose your products or services so that you can grow your business? It takes a lot of hard work to come up with a great answer to this question and even more work to make that differentiation real. It’s easy for us to say that Southwest is the best low-cost airline in the US, but it’s extraordinarily difficult for them to pull it off.

The third component of a valid business strategy is a description of the industry or industries in which you intend to compete. You need to be able to define just what kind of company you are – are you a furniture manufacturer? A gift card retailer? A consulting firm, a bearings distributor, a toy importer, etc.? This step sounds easy but we find that companies are often so concerned about getting too narrow in their focus that they fail to become really clear about what they want to do. A company with a good business strategy will have thought through these issues and made the hard decisions necessary to clarify its identity. If it has, it can easily pass the litmus test of identifying the industry or industries in which it operates.

The fourth component of a business strategy is the set of initiatives you plan to implement in the areas of marketing, operations, information technology, finance and organizational development. These are the plans that guide your company’s focus and resource allocation over the next several years. If your business strategy is specific enough to be relevant, you will have detailed plans in all of these areas.

The fifth component of a business strategy is a financial plan that forecasts the results you expect to get from your plans and illustrates how they will meet stakeholder requirements over the next 3 to 5 years. Your strategic planning process cannot be separated from your annual budget process. In the vast majority of companies, if it’s not in the budget, it doesn’t exist. That’s why you have to have a very senior financial person on your strategic planning team, preferably the CFO. During the planning process, your team must compile a financial plan that estimates the results of implementing your strategy.

This plan needs to earn the approval of your company’s management and board and should be reviewed on a regular basis to track results and make refinements. So – those are the five components of a valid business strategy. Good luck planning your success. And succeeding because you plan.