Tag Archives: bad strategy

Business Failure: Business Success Can Breed Business Failure

Tombstone-of-Successful-Company

“Corporate failure is never the results of a random set of events. It is normally a reflection of deep-seated corporate shortcomings.”

 (Chartered Institute of Management Accountants, 2012)

Business Success Can Breed Failure

We have all heard about the stories of companies that once dominated industry but later fell into business decline. There are many reasons for this. The usual suspects for business decline include becoming to dependent on existing customers, the inability to adapt business models to deal with destructive technologies, the lack of leadership, and focusing on short-term financial performance all have led to business demise. One reason not often mentioned for business decline is the hindrance of learning at both the individual and organizational levels about the true causes of business success. Success can breed failure (Edmondson, 2011). Learning enhances your capacity to face and respond to situations. However, from the business success perspective:

  • We draw wrong conclusions about the business success. We believe our success is because of the strategy, the talent, or the business model used is the cause of the success creating a false premise.
  • We fool ourselves developing an overconfidence bias. Although faith in ourselves strengthens our self-assurance to make a decision and execute a strategy, it can also breed closed mindedness and foster a “well if it worked before, it will work again” rational, which is not considering environmental changes and just plain luck.
  • We do not fully analyze the causes of the business success.  We will ferret the causes of a failure because we have to know why something bombed. However, we will not devote the time and resources to find out why the company was successful—again maybe because of false assumptions.

When companies catch the upward draft of success, the arrogance of the enthusiasm kicks in. Not surprisingly, the virus of success can become fatal in five or ten years (Kolind, 2006).  Think of Research In Motion (RIM) and AVON, companies in decline. The downdraft winds of business decline are a factor of the business life cycle.  The death cycle of business decline encompasses three factors: company size, company age, and company success.  One of these three factors can result in increase in:

  • The number of layers in management
  • The number of departments
  • The amount of formal procedures
  • The length in time the long-term planning process
  • The number of budget items
  • The amount of meetings
  • The quantity of reports

A problem is when the company loses its mojo. Success blinds management and causes lose touch with its customers.  Bureaucracy grows, information gets filtered and delayed, and arrogance breeds. Unfortunately, management will begin blaming others for performance slippage when the company begins to slide due to the downdraft of business failure.

Recommended actions include:

  • Question the causes of business success and failure.  Do not get stuck looking at the symptoms.
  • Do not get enamored at a cult personality be it CEO, advisor, leader or expert.  Question decisions and recommendations.  Remember, there is no such thing as a stupid question.  What is stupid is when you fail to ask the question.
  • Have strong, independent advisors and directors.
  • Complexity is the “fog of noise designed to hide reality.” Find and streamline to clarity.
  • Align pay and remunerations with risk.

References:

Chartered Institute of Management Accounting. (2012, February 15). Understanding the causes of corporate failure. Retrieved December 15, 2012, from Financial Management: http://www.fm-magazine.com/feature/depth/understanding-causes-corporate-failure

Edmondson, A. C. (2011). Strategies for learning from failure. Harvard Business Review , 89 (4), 48-55.

Kolind, L. (209). The second cycle: winning the war against bureaucracy. New York, NY: Pearson Prentice Hall.

 

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What is Strategy? It Starts with the Kernel

What do we mean by strategy? Many what answer, “Strategy is what ever you want it to mean.” Unfortunately, today it is a catchall word. Every executive use the word strategy from “service strategy”, “acquisition strategy”, “branding strategy”, “competitive strategy”, or whatever strategy one has in mind. But for those who think through the meaning of strategy, whether it is a CEO of an established firm, division president, or entrepreneur, strategy integrates an overarching concept of how the business will achieve its objectives.  Accordingly, it is a coherent action supported by argument, an effective mixture of thought and action with a basic underlying structure.

Too often many draw on Porter’s Five Forces Analysis to think of strategy as a matter of selecting industries and segments within them. Others dwell in game theoretical frameworks as a set of choices about confronting with adversaries and allies. When adding in core competencies, hyper-competitiveness, value chains, and other powerful tools, what is missing is the hub…strategy. And let us not be fooled that a strategy consists of a template outlining a mission statement, a vision statement, and financial projections to make up the strategy.

Let us step back and look at strategy. The kernel of strategy, the central core, consists of three elements: a diagnosis, a guiding policy, and a set of coherent actions.  You must define or explain the nature of the challenge, a diagnosis of the issues. In dealing with the challenge, an overall approach to cope with or overcome the obstacles that the diagnosis identified, must be chosen, which is designing the guiding policy. Then a set of coherent actions in carrying out the guiding policy must be made in steps that coordinate with one another to meet the objectives.

So many companies have multiple goals and initiatives that do not have a coherent approach to achieve progress, other than spending more and trying harder to ultimately fail. This was the case of Apple Computer prior to the return of Steve Jobs. Under Gil Amelio, Apple had multiple goals and initiatives through four business groups: Macintosh, printers and peripherals, information appliances, and alternative platforms. Apple was hemorrhaging cash. Steve Jobs retrenched Apple to a single goal and initiative by simplifying the company to its core competency. This was to stave off Apple from falling into bankruptcy.  Apple was shrunk to scale and scope, as a niche producer, with one line of Macintosh computers. Steve Jobs had to develop the kernel first to combat the obstacles the company faced.

See: Corporate Strategies—Avoiding the Flawed Strategy and Strategy: Good Strategy or Bad Strategy? 5 Lessons to Follow

References

Remult, R.P. (2011). Good Strategy Bad Strategy. Crown Business Publishing

 

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Corporate Strategies—Avoiding the Flawed Strategy

Even the most perfect execution cannot save a bad strategy. Conflicting goals with dedicated resources to disconnected targets lead to failure. Let’s not mistake goals for strategy. A bad strategy is just a statement of desire, wishes of outcome or fluff riddled with buzzwords, and not plans to overcome obstacles. I have seen it over and over again, lack of coherent strategy that does not coordinate policies and actions.  Unfortunately what we tend to see is multiple objectives that are unconnected, or worse, conflicting with one another. Not realizing the difference between strategic goals and strategy, many strategies are restatements of buzzwords or slogans that lack thought and analysis.

Strategy starts with facing the problem. This enables the company to have an approach to overcome the obstacle. It should be looked as a response to a challenge. But if the challenge is not defined, the quality of the strategy cannot be determined. So how can you accept or reject a proposed strategy?  By assessing, analyzing, and therefore recognizing the problem you can make an informed decision as to whether to rejecting a bad or flawed strategy, or to overcome the obstacle or achieve an objective.

Let’s look at bad strategic objectives. Have you heard of the term, “dog’s dinner?” It is a term that connotes: a mess or muddle. The challenge of a leader is to be the architect of the company’s strategic objectives and to avoid “dog’s dinner” objectives.  This is not to designing actions to accomplish specific goals, but to coordinate clear objectives or sub-goals.

According to UCLA Professor Richard Rumelt (2011), leaders design sub-goals that various pieces of the organization work toward.

“The cutting edge of any strategy is the set of strategic objective (sub-goals) it lays out.”

It is about mastering this shift from having others defining your goals to you being the architect of the organization’s objectives as these are to carve the path to overcoming the defined obstacle. Such objectives align with the company’s mission and vision.

Reference

Remult, R. (2011). Good Strategy Bad Strategy. Crown Business, New York.

 

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