Strategy Failure - what causes strategies to fail and is it often down to common mistakes in creating and implementing strategy?
The RBS bank has just posted the biggest loss in UK history after making a bad acquisition, Lloyds TSB has been forced to go cap in hand to the government after agreeing to merge with HBOS to help Gordon Brown "save the world" and retailers are lining up to be the next pre-pack administration.
These are all big businesses, professionally managed and I am sure that they all had elaborate business strategies.
So what causes strategy failure?
The strategy problem can be split into two:
- Strategy development - either no strategy has been developed or a poor strategy, doomed to failure has been created; or
- Strategy implementation - the strategy itself is sound but the implementation of the strategy failed.
Common mistakes in strategy development
- Focusing on tactics not strategy. Strategy explains the "why", tactics are the "what".
- Not understanding what customers really want. Customers should be the main focus of your strategy since it is they who will decide if you win or lose in the market-place.
- Failing to be unique and clearly differentiated in your market. Being the same creates competitive stalemate and customer indifference.
- Failing to monitor the external environment for opportunities and threats.
- Not understanding the motivations, strengths and weaknesses of competitors. I see too many strategic plans which assume growth in market share without explaining why customers should switch and how competitors will react.
- Not being clear on exactly how you will earn a profit. Definitely a problem from the dot.com boom but it is still clear that many business people haven't created a sound business model.
- Not identifying and managing risks - strategic, financial and operational. Are you listening banks?
- Not creating a culture which encourages innovative thinking and action.
Whilst many of the biggest blunders may come from a flawed strategy, there are many well established techniques for you to develop a potentially effective strategy.
Perhaps the biggest issue is that of how competitors will react to your actions to dominate your market which comes down to two issues:
- Can they retaliate?
If you manage to introduce a sustainable advantage, competitors may not be able to retaliate. They may not have the skills or the cash.
- Do they want to?
It may seem strange when you start thinking about competitive reactions and how for example if you reduce price, they will reduce price, they may not be that committed to a fight or it may not make long term economic sense to destroy industry profitability.
Game theory is a very useful technique for looking at competitor reactions and the payoffs available in the market.
Common mistakes in strategy implementation
This is where it does get more difficult since you have to get your staff, customers and suppliers to take action.
A difficult challenge when senior management teams struggle to take action consistent with the strategy.
- Failing to put your strategic objectives and logic in writing.
- Failing to regularly refer back to your strategic plan. The memory does play funny tricks and the agreed strategy may not be as you remember it.
- Not communicating your strategy to your team of employees. If you don't tell them where you are heading and how you will get there, how can you expect their actions and everyday decisions to be consistent with your strategy?
- Not sitting down with each employee or group of employees and explaining what the new strategy means to them and how their role has to change.
If your new strategy is improved customer service, shouldn't your staff know what improved customer service means in their jobs? And if they don't have the skills, provide training.
- Using rewards and incentives which conflict with your strategy.
If you change strategy, you must change the incentives since people will do what you reward them to to do.
Not having incentives that support your strategy makes like tougher, having incentives which conflict with your strategy means that you will fail.
- Not measuring progress on your strategic objectives. If it is important, measure it.
- Failing to develop the right business business which can deliver customer benefits and value at a low cost. This means focusing on both efficiency and effectiveness.
- Failing to periodically revise your strategy and particularly if the external environment is unstable.
It was General Eisenhower who said "no plan survives contact with the enemy". Implementing a rigid plan is impossible because you can't predict how all the important players will act.
That's why it is important to know the overall objective and broad guidelines since they should influence everything done.
What do you think about the causes of strategy failure and the common strategy mistakes?
Have I missed any big reasons why business strategy is often a failure?
Do you disagree with me on any of the points?
Please leave a comment if you have anything to add to this topic of strategy failure.