What is Strategy? 5 Common Reasons Why Strategy Fails
Seat Time: 5 min
What’s Your Strategy?
When I ask business owners what their strategy is, I usually get one of the following types of replies:
90% offer a blank stare, followed by a quick platitude (e.g. “to provide outstanding service”)
8% reply with an objective of some type (e.g. “to be the first in our industry”)
2% can succinctly state a genuine strategy for their business
Part of the problem is that most people don’t know what a strategy is and confuse it with goals, objectives, and the typical clichés. And even business schools are complicit in their inability to convey this most central concept to their graduates. This is clearly shown in my job interviews of freshly minted MBA grads who, after lengthy dissertations of their learnings, liberally peppered with the word strategy in its many derivatives forms (noun, verb, adverb, and adjective), still cannot concisely define the word for me.
What is Strategy?
By definition, a strategy is your game plan to win and needs to have the following core elements in its frame:
A clear understanding of your organization’s purpose, where it is today, where it wants to go, and its accompanying resources, capabilities, and motives
A deep understanding of the motives and behaviours of your customer
A thorough understanding of your competition, their motives, resources, and capabilities
A defined map of the terrain/ecosystem that you, your customer, and competitors reside within
A differentiated, compelling, emotionally resonant, functionally relevant, reason to buy based on the above
A coherent operational plan to put the guiding policy of “the strategy” into play, BASED on your ability to execute
Concepts like branding, positioning, pricing, and other “strategic” building blocks all follow from these fundamentals.
Why Strategy Fails
Southwest Airlines entire strategy could be summarized by the words “Wheels Up” …
Here are some of the most common reasons why strategy fails:
The company has not made any real choices in key business model elements. When you hear comments like “Everyone’s a potential customer” and “Everyone needs us,” unless you are the municipal water company, it just isn’t true. Clear, focused choices need to be made in categories such as:
Customer segment served
Customer channels pursued
Value propositions delivered
Key resources needed
Key activities executed
Revenue & Cost Models
It’s an inherited strategy created for a different time – Times change, and your strategy needs to change with it. As an example, the car dealership sales strategy of 30 years ago was based on asymmetric information. The customer was forced to work with incomplete information on the true dealer cost or a fair price of a new car. Today, anyone with an internet connection and $25 can access the same pricing databases the dealerships use. In the face of this, you would think that the “sales strategy” would change because it needs to change. Sadly, not all dealerships are facing up to this new reality!
Confuse “strategy” with goals, objectives, and slogans. You can’t win by saying you want to provide outstanding service or be the number one player in the category. The real question is, HOW are you going to create a sustainable competitive advantage that competitors will have great difficulty replicating. Take a look at Apple’s entry into the crowded mp3 player market in 2001. By itself, the iPod is just another music device, but with a PROPRIETARY integration into the iTunes ecosystem, the entire user experience is transformed. Browse, select, buy, play, & organize all in one system. Samsung is going to have a tough time breaching this moat. And the more tunes the customer buys, the more playlists they create, the deeper and wider that moat becomes.
Fail to Embed the Strategy into Operations – By itself, a strategy is a guiding, coherent policy that governs how an organization operates to create a sustainable competitive advantage. If a strategy exists only on paper, it is entirely useless. The strategy must be operationalized. Southwest Airlines’ entire strategy could be summarized by the words “Wheels Up,” which recognizes that they aren’t making money if the planes aren’t flying. This is common knowledge to its competitors, but Southwest operationalizes this strategy better than any other domestic airline resulting in some of the highest productivity metrics in the industry. How do they do this? By walking the talk!
It primarily flies 737 jets, which allows it to dramatically lower its maintenance costs by not having to deal with multiple types of aircraft, parts, and labour to service them.
They primarily fly point to point into secondary airports, thus avoiding the long delays and higher costs at major hub cities. The result, one of the fastest “push back” times in the industry.
No food served results in dramatically reduced grooming times for the planes.
No reserved seating means faster load times for passengers
All of which results in higher productivity for each jet, meaning fatter profits for the business!
The Strategy is Kept Secret – If your staff can’t recite your strategy, they will have great difficulty executing it. A strategy that is poorly executed is the same thing as a poor strategy.
In summary, the following quote by Sun Tzu is appropriate:
“If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle” – Sun Tzu (544 BCE – 496 BCE), The Art of War