Toyota Highlander Hybrid - Only for the Young

I currently drive a “gas guzzling” old fashion Toyota Highlander. Here, in the mountains of northern New Mexico we drive long distances and do relatively little city driving. Not surprising since in the entire state, we only have two cities with a population over 100,000.

My Toyota Highlander gives me 23.4 miles per gallon according to the on-board computer and is rated for 19 mpg city and 25 mpg highway. The new Highlander Hybrid is rated for 33 mpg city and 27 mpg highway. How much improvement in gas mileage can I expect if switched to the new fuel efficient Hybrid? I can interpolate this information to indicate my mileage savings would be 2.1 mpg. Of course, the next question is how many miles must I drive at 5.1 cents mpg savings to pay back the additional $3,000 cost of a new Highlander Hybrid? At $2 per gallon my current Highlander costs 8.5 cents per mile, and the Hybrid would cost 7 cents per mile. This leaves me with a saving of 1.5 cents per mile. If I divide that into the $3000 additional cost, I would have to drive 200,000 miles to break even. Considering I drive about 10,000 miles a year, it would take a little over 20 years to get my payback. This is without factoring in the time value of money.

Herein lies is the strategic dilemma with Hybrids. If you are a city driver you get a potential big savings in gas mileage, up to 15 miles per gallon. However, city drivers don’t drive long distances and therefore don’t have the high fuel usage to justify the investment. If you are a high mileage highway driver you get far less improvement in fuel efficiency and as I have demonstrated, at age 55 and older you are statistically unlikely to recover your investment.

Operating vs. Strategic Decisions

We define Strategy as “The Art and Science of meeting your competitors in the Market under advantageous conditions”. It’s about positioning your business relative to your competitors. It’s about gaining market share when you are advantaged and exiting markets when you have no advantage. Strategic decisions should always be market centric decisions.

Operating decisions are structural decisions associated with staffing, facilities, asset management, and controlling and financing the business. They are often not strategic decisions as they do not relate to how we are positioning our business in the markets we serve.

When I was at a large NYSE company, George Gage, the Vice President of Business Planning, indicated most of our managers spent the majority of their time on operational decisions unrelated to strategy. As a business manager we come into the office each day and face a deluge of e-mails, follow-up phone calls and lengthy conference calls seldom getting to focus on those decisions critical to our market position and changes in the size and shape of our markets.

How much of your time is trapped in making the day-to-day operational decisions? Do you spend any part of your day analyzing competitors, surveying changing customer needs, searching for the market externality or market alternative products or services that will significantly impact your business?

Where is the Exit Strategy?

In a small but growing community found along the Turquoise Trail in New Mexico, a local video store was thrown on the defensive when national powerhouse, Blockbuster Video, opened its doors. The local entity successfully beseeched the community to shun the intrusion of the corporate behemoth. In fact, it was not uncommon to overhear mothers at the local elementary pledging not to visit Blockbuster.

So, is the video store saved? Maybe in the short run, but how many of its former customer base are already getting their video on demand? How many more utilize online services such as Netflix and now Blockbuster? The video store is a business model whose end is precariously near, yet the owners show no sign of an exit strategy. Do you have an exit strategy for your business?