Why Strategies Fail?– It is because traditional planning is too slow for a dynamic and hyper-competitive world.
A typical strategy will have the following constituents.
New business models & technologies with the power of digitization are disrupting existing companies. So enterprise strategy has to be agile, fact-based, and responsive. Here are the 8 biggest reasons for strategy failures and what we can do to avoid them.
As an example, an entity selling restaurant discount coupons can project 100K customers by selling to 1% of the 10 million target market. Based on this premise, they may over-investing.
From a mathematics standpoint, this may sound great, but this is one of the key reasons companies go down. A large customer segment has many sectors (High-end vs. low-end eateries, frequent vs. occasional visitors, discount seeking vs. non-seeking, etc..). Each of these sub-segments needs different sales & marketing strategies and product variants. Also, other niche players are serving various sub-markets.
Lack of sub-segmentation leads to a vanilla approach across the diversity of customers. This ends up making you doing everything for everybody.
How to avoid it?
There is no harm in thinking big, but you need to shift from ‘Vanilla’ to ‘Niche’ targeting. Select top-3 (say) niches and limit your phase–1 of growth to the said areas. Going deeper is preferable over going wider. Remember, if you are not in the top 3 of the markets you serve, you will fail. So better to narrow your areas(s), than being an ‘also ran’ player in a larger population.
Misplaced and invalid assumptions are the biggest killers of a business strategy. One wrong assumption can take a company in a wrong-direction. Today’s environment does not provide many chances to make corrections.
The major reason for misplaced assumptions are:
For example, a senior executive who has excellent direct sales track-record could assume that it is the best way to go. He may fail, if market has have moved to a network-based sales model and digital-channels.
How to avoid it?
You make business game-plan in two different environments:
Keeping everything as same, the dynamics of these two environments are opposite. Investor review will have the following aspects, for an excellent strategic blueprint:
By limiting, strategy formulation to a closed group of CxOs has risks and disasters. It is not a question of competency or intent. Every team has its blind zones, and external strategy input can be valuable.
How to avoid it? Every organization should bring in an empowered external coach/strategist. He will play the role of being:
It’s difficult for a management team to bring in an external entity and give high empowerment. Ideally, it should not be the decision of shareholders but owned by the management team.
Let’s say that you have created a robust strategy with most of your assumptions validated. What will you do if the market conditions change and new competition comes in?. How will you react, if new technology disrupts your products, and tariffs change?
A business strategy has to be a living and evolving organism. Most companies do not prepare themselves for new developments, sudden shocks, and setbacks. There is a rigidity built in finance, production, products, and channels.
This limits the capacity of a company to respond to expected and unexpected events. Trust me; uncertainty is the only certainty in today’s business environment. However, most companies do not invest in building flexibilities and back-ups.
How to avoid it?
You can build agility and responsiveness by adding the following components:
Companies consider strategy as an ivory tower function. A set of senior individuals churn out the blueprints, which the worker bees will execute. It is less blame to corporate governance, but more to the traditional mindset of inertia.
Typically, strategy formulation excludes field employees, vendors, customers, channel partners, and industry experts. Thus, companies miss out on high valuable and passionate inputs. Also, not involving stakeholders dilutes ownership at all levels.
How to avoid it?
Stakeholder involvement will give rich dividends when we listen with humility. We need to complete the feedback loop, updating people on what happened to their inputs. It will help to show openness to diversity of views. It is the actual test of leadership.
For certain months in a year, the management team spends a lot of energies to develop next year’s strategy. However, the plan falls apart more often than not within the first few months. Then the organization moves from one fix to another, and one crisis to another. Also, it takes the focus away from building a future-ready organization.
How to avoid it?
Companies play safe and that is why strategies fail. They feel secure by following the strategies followed by the industry leaders. There is nothing wrong with learning from your competition. However, unless you have innovative and creative ideas you will always be a follower. Companies with killer new ideas and courage to try them out, get ahead of the competition.
How to avoid it?
A company cannot bet its existence on a new, untested idea. At the same time, they should have at least ten brain-stormed ideas which they should incubate. The chances are that out of 10 pilots, 2-3 ideas will be winners and become force-multipliers.
Every company needs to have USP, entry, and exit barriers is a risky proposition. Good operational backbone and sales machinery can ensure short-term success. Still, without offering something unique, you will ultimately become the victim of price-wars.
Companies without differentiators, become a ‘Commodity’ player and a ‘low-cost leader.’
The reason for not being able to develop differentiators are:
For example, if I offer onsite replacement instead of repair, it will mean a complete service overhaul. It will need after-market parts inventory management and higher working capital.
How to avoid it?
Lack of differentiators is the biggest reason for why strategies fail. It would help if you work out your strategies so that at any point, you have at least:
It is the CORE of your strategy blueprint. Working out differentiators is difficult. There are three stages in the process:
The idea is like the previous point of out of box thinking, where you incubate new ideas and work out some big winners
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