Business Strategy is one of the core topics covered in every business curriculum. Bright, aspiring young business leaders go out into their corporations, MBAs in hand, equipped with the skills to create beautiful business plans filled with matrices, tables, charts, and graphs. Many companies have strategic planning divisions or departments filled with people who have lots of analytical skills. We mainly think that strategy is an important business activity. We wouldn’t think of running an enterprise without a strategy…without a plan, a set of goals, and objectives. But, even strategy can have its pitfalls.
I came across an interview of Michael Porter (Harvard’s best known strategy guru) by Joan Magretta where she asked him what some of the most common strategy mistakes were. This made me think about what I saw as common strategy mistakes as well. Below is a list I compiled (Porter’s list of strategy mistakes follow mine):
We think about strategy as the end-product. At the culmination of the strategic planning process, we typically produce a massive strategic (or business) plan document. It can consist of hundreds of pages, spreadsheets, and PowerPoint slides. Now that we have “finished” the strategy, participating executives go back to their “day jobs” and the strategy document goes on the shelf. It’s not really exercised, except when we are held accountable for achieving the financial metrics that came at the end of it.
In many organizations, meeting the metrics is what dominates thinking and behavior. The strategic initiatives seem to yield to the skills of financial engineering needed to manage business performance.
The value of any strategic planning system is the process itself. The value is not so much in the finished documents, but in the debate, reflection, choices, and discussion that takes place as we’re building it. Too often, companies involve a relatively few number of people in developing strategy, and it is no wonder that the masses, deprived of the chance to participate in the discussion, have little affinity for, and limited understanding of the strategic intent.
We struggle too hard to create the one “right” strategy. The MBA mentality is that there is always one “right” answer to every situation or problem. We work really hard to develop the perfect strategy, research thoroughly, and perform analysis.
The truth is that there are many different choices available to us in terms of how we want to compete. We can decide to compete on quality, customer service, technology, cost, or company culture – to mention a few. As long as the competitive advantage we try to create is correctly aligned with the desires and needs of the customers we have chosen to serve, things will work out.
When I was at Marine Corps Officer Candidate School, I learned a key lesson there. The Marines learned over the last 230 years to value action over analysis. They teach that when you have 70% of the information available, you should make your decision and begin implementation. They further argue that even a “mediocre” strategy, if aggressively executed, can often produce good results.
That is an interesting idea. It suggests to me that what matters more than having a perfect plan, is having alignment among all the fire team members so that their actions support each other and the commander’s strategic intent. This means that they understand it, and know what their own personal role is within the overall plan. So let’s invest more energy of communicating strategic intent, and helping assure greater consistency of purpose across teams.
We do not force ourselves to have the discipline in strategy execution. It is great to decide that we will build our competitive advantage based on producing superior product quality, for example. So if we have made this choice, quality initiatives should dominate our internal agenda. They should greatly influence who we hire, what we train, and how we spend money. If we claim that quality matters but pummel our managers each month or quarter over meeting short-term financial results, I can guarantee that quality concerns will take a back seat to financial ones.
Yes, there is a dichotomy here. We want both . . . high quality and financial performance. But the mindset needs to be that by producing superior quality (however, we define it) we will produce the undying customer loyalty, word of mouth referrals, and repeat business that will ultimately PRODUCE the financial performance we seek. We want our organization to believe that it is QUALITY that drives FINANCIAL METRICS. Otherwise, quality becomes just another slogan on the posters in our facilities or on our company website.
Again, it is about consistency of purpose. One of the best examples I can cite is that of Wal-Mart. They are a controversial company, and many people (when I teach a Wal-Mart case) are critical of some behaviors of the company like being harsh on suppliers, being anti-union, hiring many part-time workers, etc.
In my view, the company mission (enabling ordinary people to save money, so they can live better lives) COMPELS them to do all the things listed above. Everything about W-M actions is to drive down cost, improve productivity, and manage the supply chain with fierce efficiency. They have the discipline to do what they must to insure that they live up to their brand promise (helping people save money). Just visit their company headquarters in Bentonville to see proof that they live to a more Spartan set of ideals than do most organizations.
Now here are some common mistakes that Michael Porter sees:
We follow our industry leader. Porter asserts that very often we look at the industry leader and try to emulate their actions, products, and go-to-market approaches in the illogical hope that it will somehow produce superior results for us. In a dynamic world filled with able competitors, this can be a hard race to win.
A better approach is to find a new means of achieving competitive advantage that our competitors haven’t yet thought of.
We overestimate our own strengths. I learned this one the hard way. Just let someone write a couple of complementary articles about you in the local press, and you actually start to believe in your own myth. Our organizations are hard-wired to overestimate internal strengths. I never spoke to one of my engineers who did not believe our technology design was the best one in the market. The only measure of your true strengths comes from speaking openly to customers. What I say was that we did have some impressive technologies, but in many of our markets, customers valued other things more highly – like price. When I was able to speak to clients honestly, I almost always found that those areas where we felt we excelled were seen by them to be points of parity, or sometimes even weaknesses.
Be suspicious of your-self assessments.
We define our business wrong. In my business, we served Asian, European, and US car makers. We saw the auto industry was becoming more global, and so we concluded that we needed to be as well. We did greatly expand our sales overseas (to almost 40% of our total revenues). But we discovered that the demands of our three markets were very different. They all defined quality, technology, customer service excellence differently. We hoped for synergies (selling the same products to everyone in a global market). But we had to develop three different sets of designs (at great excess cost) to serve clients on each continent.
Perhaps globalization was the right strategy for us, but we greatly under appreciated the challenges of serving each different customer group.
Another good example referenced by Porter is the railroad industry, which saw itself as just that, rather than being in the transportation business. Thinking narrowly about their business, arguable caused them to underestimate the threat from trucking and air freight, leading to dramatic declines in their revenues.
Here is 2 minute clip of Michael Porter in London, lecturing about what strategy is and isn’t. He makes a great point about the difference between strategy and action steps.