OH! WHAT A REVOLTING DEVELOPMENT!
By Paul Winters
One of the essential ingredients of strategic planning is a situation analysis. A properly prepared situation analysis provides external sensors to detect opportunities and threats to the company's market, and defines factors that are critical to success. It provides information on segmentation of the market. And, finally, it provides for a realistic internal evaluation of the company's strengths and weaknesses. Awareness of the constant change in the marketplace and the ability to respond to those changes are necessary for the long term success of a company. Here is an example of how a company's methods of dealing with changes affected its business.
In 1965, Howard Johnson's, a motel and restaurant chain principally located on the East Coast, was a magnificent, dynamic, profitable enterprise. It dominated the market supplying goods and services to the American traveler.
Its roadside, orange-roof restaurants were distinctive beacons for weary travelers. They promised and delivered a clean place with a nice wash room, predictable but wholesome food and ice cream to placate the children. The restaurants benefited greatly due to the captive audiences staying in the adjacent motor lodges.
The only alternatives were greasy hamburger joints and smaller flea bag motels. In short, HoJo's offered a homey, familiar place away from home.
By 1985, Howard Johnson's was headed for dismantling. How could this happen?
In an article in Forbes Magazine (December 30, 1985, pp. 75-79), John Merwin summed it up when he wrote: "...listen to a Carolina freight trucker who has been shifting gears through HoJo's country for 24 years. 'Years ago I used to take my family and drive 20 miles to a Howard Johnson's near my North Carolina home. These days we go to a fish place or a steak house closer by...'"
Wherever Howard Johnson's was located, a McDonald's, Wendy's or Kentucky Fried Chicken soon opened nearby and specialized in a part of HoJo's menu. As Merwin said, "Howard Johnson's stood fast with a diversified menu while it was being segmented to death."
Even their famous 28 flavors of ice cream came under attack. Baskin-Robbins' 31 flavors and Haagen-Dazs premium ice cream drove HoJo's offering to near extinction.
During the same period a second set of customers arrived on the scene---The Business Travelers. Business Travelers didn't want a frank and a soda, and "...they certainly didn't want to sit next to a noisy kid with a sticky face. The business types wanted a drink and a steak, and maybe a little action in the bar. The HoJo restaurant offered them little." Marriott jumped all over this opportunity by building "motels and restaurants as packages tailored to carefully selected markets."
What was Howard Johnson's response to this massive attack from segments above and below? They refused to "innovatively imitate" the cheaper fast food chains that were expanding rapidly; they refused to shell out big dollars for downtown ice cream parlors to compete with Baskin-Robbins; they refused to update their roadside restaurants; and they refused to take on debt for new motels and restaurants in response to the needs of the new travelers.
Notice anything? There was no real strategic plan. They ran the company more with an accountant's eye than with an entrepreneur's.
Howard Johnson, son of the founder, said, "We ran a very tight operation. We kept our expenses low. We wanted to have earnings improvement. We were on top of the numbers daily."
It is probably not fair to say they weren't aware of their deteriorating market share. They were just not willing to adapt to it. An unfortunate economic downtown during World War II had caught Howard Johnson's with too much long-term debt. That experience left them leery of any sort of long-term debt.
Their direction of avoiding long-term debt reduced their alternatives in the marketplace. The inability to properly react ultimately led to a surrender of their market share to others.
What they needed was a Situation Analysis. They needed to analyze all the pertinent internal and external information. They needed to impartially evaluate their strengths and weaknesses, including their reluctance to incur debt. They needed to identify the critical success factors and create a responsive plan of action.
They needed to do it in the early 1960's when the assaults on their company first began. Instead, they coasted for several decades and blew a wonderful opportunity.
Be prepared! Your business is guaranteed to face challenges. Will you recognize the challenges, and are your prepared to deal with them?