Why is the Business World Littered with Examples of Bad Strategy?
19.04.23
A critical question that I use to kick start my strategy workshops is, “Why is the business world littered with examples of bad strategy?” In my 2018 Contemporary Issues in Strategic Management text, a critical question investigated was that even though the vast sums of money firms spend on strategy, reports of failure continue to escalate.
Today this continues to be a theme in the media; we have recently witnessed some major organisations reporting problems with their strategy. Mark Zuckerberg's Metaverse ambition is now being pivoted to AI, and Disney laid off its division, formulating its Metaverse strategy. As markets re-evaluate their growth strategy, Amazon's stock has fallen nearly 40% over the past year. Ft.com recently reported that EY, one of the big four accounting firms, now risks paralysis and a power vacuum after its break-up failure. Its ambitious intention was to pronounce grand plans as a road map for reshaping the profession. John Lewis Partnership’s stalled strategy was partly to blame for a £234m loss which incorporated a 3% drop in sales for the Waitrose supermarket business.
An issue to consider is that the decline can take leadership teams by surprise. Using data from US AMLaw 200 to create a sample of the 200 highest-grossing Law firms' failures from 1988 to 2017, John Morley, a Yale law Professor concluded that law firms don’t just go bankrupt; they can collapse and die with astonishing speed.
Leadership teams of large and medium-sized companies possess the expertise to incorporate external analysis into their strategic planning processes. These can include analysis of market volatility and instability due to the rapid pace of change in markets; the need for flexibility, speed, and innovation; integration in the use of technology; strategic and operational complexity of global-scale competition; Rising service and product quality standards with smaller budgets. But strategies can and do go astray if leadership teams are stuck in a legacy managerial mindset, too slow to adapt to change and fail to comprehend the reality of their sources of competitive advantage.
Some may conclude and argue that strategic planning is dead, such as imminent academics such as Henry Mintzberg. But as Mark Twain remarked on learning that his death had been incorrectly reported, “the reports of my death are greatly exaggerated.” This article contends that such missives tend to be based on faulty assumptions in this VUCA world.
My Contemporary Issues in Strategic Management book seeks to investigate how to drive organisational change but realises that those responsible for leading organisations need to adopt a fresh approach. For example, the past is no longer a guide to the future. Organisations must learn to change to meet the challenges of discontinuity and maintain/enhance market position. Recession aftershocks, huge new risks, and persuasive uncertainty, together with the obstacles defining today’s business environment, place a more significant premium than ever on sound strategy. Yet the strategic-planning approaches many organisations devised in the past remain ineffective.
However, being complex is not the answer. A thought-provoking Harvard Business Review article by Zenger (2013) raised the question, “Are unique or complex strategies systematically ignored by analysts or undervalued by capital markets?” His findings unsurprisingly found that company size and trade volumes influence analysts’ decisions about which companies to cover. But, Zenger concluded that capital markets routinely undervalue companies with complex strategies. Moreover, these observations flow to smaller organisations in that strategies must be simple for stakeholders to comprehend.
Several concluding thoughts come to mind, but I shall concentrate on one of my frequent observations that what is often thought of as a strategy is, in reality, a plan that contains limitations that negatively impact success; these include:
• List of aspirational statements, but don’t provide details about achieving them.
• Many numbers and dates articulate goals but don’t specify how.
• No explicit theory to confirm the salient hypothesis of what is the key differentiator of the proposed strategy.
• A lack of coherence throughout the plan that will align the organisation with the reality of the complex external environment.
• Failure to articulate the necessary answers to the awkward questions for the proposed strategy.
ENDS
Recommended Read
Change is currently a constant thread that flows throughout every leadership conversation. However, this phenomenon relates to both individuals and the organisation. Aidan McCullen’s book The Undisruptable: A Mindset of Permanent Reinvention for Individuals, Organisations and Life is a light and engrossing read that closes the gap between the individual and organisation concerns.
This is pertinent, as all executives now face the challenge of embracing disruption at a cognitive and organisation level or face being themselves disrupted with severe consequences. McCullen’s book contains thought-provoking questions contextualised in metaphors, science, humanities and the social sciences. The use of models and real-world examples to help you to embrace a state of permanent reinvention.