The seven traps of strategic planning
The seven traps of strategic planning. (adapted from 'Mission Critical: The 7 Strategic Traps that Derail Even the Smartest Companies') Joseph C. Picken; Gregory G. Dess.
Why do strategies fail? Is it planning? Is it leadership? Is it just fate?
We believe that most strategic failures are avoidable, yet strategists seem to fall into the same traps over and over again. Why can't business leaders learn from the mistakes of their predecessors? We've got two theories. First, strategies are about the future, and most strategists are, by nature, optimists and pay little attention to what might go wrong later. Second, even when strategists acknowledge the possibility of failure, they tend to see every situation as unique. Yet there is much to be gained from examining the strategic failures of others.
Over the years, we have assisted hundreds of companies and their top managers. And as we compared notes and reflected on our experiences, we arrived at a couple of observations. The best of strategies, poorly implemented, is of little value. A flawed strategy--no matter how brilliant the leadership, no matter how effective the implementation--is doomed to fail. A sound strategy, implemented without error, wins every time.
There's a common misconception that to be considered a success, you have to be number one--to be the first to market with the best technology, to have the most aggressive sales force or the most creative and inspiring leadership. But as we looked at more and more companies, the lesson was clear: not everyone needs to hit a home run every time at the plate. A strategy need not be brilliant, as long as it is sound, is well conceived, and avoids the most obvious strategic errors. We also found that it doesn't take the world's greatest leader to succeed in implementation, just one who doesn't make any really dumb mistakes. And the most important lesson of all is that it's not that hard to avoid the most common strategic traps--if you know what to look for.
Strategic Trap Number 1: Failing to recognize and understand events and changing conditions in the competitive environment.
Consider what happened to the A. T. Cross Co. For decades it dominated the luxury-pen market with its slender, elegantly designed pens, which retailed for $25 to $60. Beginning in the 1980s, however, Americans began to pay much higher prices for pens of different shapes and styles. By the late 1980s, Cross found itself repositioned as a midpriced offering and squeezed by foreign competitors in its traditional channels. Broadening its distribution into mass-merchandising channels to maintain volume narrowed its margins and further eroded its image as a status symbol. The result was devastating--for the management team (which was replaced), for the employees (who lost their jobs), and for the shareholders (who lost their shirts).
Strategic Trap Number 2: Basing strategies on a flawed set of assumptions.
After years of declining ridership followed by a bitter union battle, Greyhound filed for Chapter 11 bankruptcy in dune 1990. It emerged by October in the hands of new management. The first key assumption of the new team was that the bus business was similar to the airline business. Having accepted that premise, the team followed with a whole series of additional assumptions, and almost every one was incorrect. The company's new airline-style pricing and promotional efforts failed to attract new riders because the purchasing habits of the customer base were markedly different from those of airline customers. By the third quarter of 1994, the CEO and the chief financial officer were out, an interim management team was in place, and the company was preparing another Chapter 11 filing. A bus-industry veteran took over in November 1994, and bankruptcy was averted through a financial restructuring.
Strategic Trap Number 3: Pursuing a one dimensional strategy that fails to create or sustain a long-term competitive advantage.
Some Japanese automakers have fallen into this trap. Their traditional strengths have been their ability to differentiate themselves through high-quality manufacturing, excellent research and development, and impressive technological innovations. While there are several uncontrollable factors responsible for the erosion of Japan's market share, the automakers have contributed to their own demise by adding costly features and gimmicks that consumers simply don't value. An example: even subcompacts include gadgets such as side mirrors that vibrate to shake off the rain. Such features have driven up costs and made many models less competitive.
Strategic Trap Number 4: Diversifying for all the wrong reasons.
Ill-considered diversification strategies based on growth for its own sake or portfolio-management strategies often create negative synergy and a loss of shareholder value. The Dole Food Co.'s specialty is growing and processing fruit. It has been battered in recent years by softening prices for bananas and pineapples. It ran into even more problems when it tried to add to and develop some of its vast real estate holdings. Here we have a pineapple processor tackling island management!
Strategic Trap Number 5: Failing to structure and implement mechanisms to ensure the coordination and integration of core processes and key functions across organizational boundaries.
Frox, a well-funded hightech company, was founded in 1988. By early 1994, $43 million in venture capital had yielded sales of 100 "smart" TVs before the company closed its doors. Managed by engineers, Frox had paid scant attention to market research, production, quality assurance, or sales and marketing. Its product's projected retail price rose from $5,000 to $30,000, well above what the market would bear.
Strategic Trap Number 6: Setting arbitrary and inflexible goals and implementing a system of controls that fails to achieve a balance among culture, rewards, and boundaries.
Bausch & Lomb enjoyed a great run between 1981 and 1991. Achieving double-digit annual growth was CEO Dan Gill's over riding goal. Things started to unravel in the early 1990s as growth slowed in the United States and Europe, competition intensified, and Gill's strategy of diversification failed. But the unyielding growth targets remained. And the key to financial rewards was straightforward: making the numbers. How did the operating managers cope? With practices that resulted in a Securities and Exchange Commission investigation and a shareholder class-action suit, among other things. Only after the SEC investigation began did Gill and his top executives order the company to follow more conservative practices, eliminate quarter-end wheeling and dealing, reduce distributor inventories, and change bonus guidelines to incorporate broader, longer-term goals.
Strategic Trap Number 7: Failing to provide the leadership essential to the successful implementation of strategic change.
The example of William Agee at Morrison Knudsen really says it all. In 1987 Morrison Knudsen's board looked to a change of leadership to reverse the company's declining fortunes. They selected Agee, a member of the board who had the credentials. But the example he set was inconsistent with the direction he had dictated. Rather than empowering his managers, he fired those widely considered to be the best and replaced them with yes-men, effectively consolidating his power. Communications--even with the board--were obfuscated. In February 1995 the company reported that it expected a large loss for 1994, was in default on its loan agreements, was eliminating its dividend, and was seriously considering the sale of several of its noncore businesses. Agee was thrown out as CEO.
In the final analysis, leadership is critical. But effective leadership does not necessarily involve high-profile charisma or risky strategic innovations. Rather, effective leadership is more frequently about maintaining a steady hand on the tiller--ensuring that the organization is "doing the right things" and avoiding the common strategic errors.
From Inc Magazine.
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