Why Popular Strategies Always Fade
The most capable strategists see the real value, and big pitfalls,
in new business concepts.
For nearly 50 years, “strategy” has been a
business of promoting universal prescriptions based on what appears to explain
the success of a few revered companies. At first glance, this practice makes
perfect sense. Why not draw lessons from those who seem to have figured it all
out? In reality, though, the approach has the deadly effect of separating the true
owners of a company’s strategy (the prescription promoters) from those
implementing it (management). No doubt, the promoters work hard to win
management’s acceptance of their concept. But when the inevitable bumps in the
road appear, the strategy concept is ditched, often with management saying it
doesn’t work and its promoters blaming poor implementation.
In the 1960s and 1970s, the hot concepts were
the experience curve, the growth-share matrix, and SWOT (strengths, weaknesses,
opportunities, and threats) analysis. The 1980s gave us five forces, value
chain strategy, scenario planning, and total quality management. In the 1990s,
business process engineering, customer loyalty, competing for time, competing
for the future (core competencies), and growth horizons gained traction. Those
ideas were followed by co-opetition, BHAGs (big, hairy, audacious goals),
growth adjacencies, and blue oceans in the 2000s. These hugely popular
concepts, and many others, have largely faded after enjoying a few years of attention
and acclaim. Very few have had a lasting impact on the art, practice, and
substance of strategy — though they have left behind a lot of jargon.
Nevertheless, the business of strategy will
continue to churn out the next big thing, because strategy concepts provide a
modicum of comfort in an uncertain, complex world. But the most capable
strategists are never swept up in the hype. They understand the limitations of
such concepts and resist the allure generated by their popularity. Perhaps most
important, they know that new concepts — however popular — lack the three
essential characteristics of a great strategy. A great strategy is unique,
specific, and complete; it stands on the shoulders of a big idea; and it is
owned by a leader who is ultimately responsible for its implementation.
The Strategic Five
By
their nature, big strategy concepts are not particular to any one company.
That’s problematic, because when they become wildly popular and widely adopted,
no one gains advantage from them. In fact, the me-too pursuit of strategy
concepts stymies their supposed benefits. For example, in 1972, DuPont
adopted the
experience curve concept as the strategy of
its titanium dioxide business. It invested more than US$400 million in new
capacity to maximize market share, following the concept’s logic, until
1979, when industry capacity utilization collapsed from 88 percent to 64
percent. DuPont’s margins fell to half of what they were when the company first
embraced the experience curve.
Great
strategies answer five critical
questions (“the strategic five”) in ways that are
unique to your company:
(1) What business or businesses should your company be
in?
(2) How should you add value to your businesses?
(3) Who should be the
target customers for your businesses?
(4) What should be your value
propositions to those target customers?
(5) What capabilities should differentiate
your ability to add value to your businesses and deliver their value
propositions?
You won’t find the answers to these questions
in most strategy concepts. Consider total quality management (TQM), a
prescription for reducing cost by minimizing error. TQM is mostly silent on
what kind of businesses should be in your portfolio and why, or who your target
customers should be and why they’re glad your company exists. It is also a
dangerously narrow prescription for what you have to be better at doing than
anyone else to achieve and sustain great success.
Instead
of asking “Should we adopt TQM?” leaders should ask “How can TQM improve our
answers to the strategic five?” A company such as Danaher, which actively seeks
to add operational value to each business in its portfolio, would have an
answer very different from those of Berkshire
Hathaway or IKEA, because the three companies have different
strategies for adding value to their businesses. Furthermore, because these
companies can answer each of the strategic five questions with precision, they
can be disciplined about whether they use TQM and, if so, how. In other words,
their strategies are not just unique and specific, but also complete. This
enables them to get the most out of strategy concepts without becoming hostage
to them.
What’s the Big Idea?
Too
often, strategy concepts conflate goals with ideas. For example, competing for
time and the experience curve are, respectively, prescriptions to operate
faster than everyone else and to minimize cost by maximizing market share. But
“maximize speed” and “increase quality” — or, for that matter, “maximize net
promoter score,” “expand growth horizons,” and “occupy white space” — are
really just generic goals that any company might adopt. They are not big
ideas.
Big ideas are novel solutions to specific
problems that are unique to particular companies. Sam Walton, founder of
Walmart, had the idea to build a network of centrally coordinated shops to
serve a regional population of millions. This solved the problem of profitably
serving towns smaller than 100,000 people with full-line discount stores.
Likewise, Starbucks’s strategy to create a
nationwide chain of coffee shops as a “third place” between office and home
originated in Howard Schultz’s big idea to re-create the Italian espresso bar
experience. Henry Ford’s strategy to offer just one model (the Model T) in just
one color (black) started with an idea that changed the world forever: the
moving assembly line. A decade later GM replaced Ford as the world’s largest
automobile manufacturer by adopting Alfred Sloan’s revolutionary idea of
branding different price points (Chevrolet for the lowest price point and
Cadillac for the highest). Lou Gerstner turned around IBM with his idea of
being a fully integrated IT partner of corporate clients. None of the ideas
that made (or remade) these great companies came from a strategy concept.
The
concept of BHAGs, enormously popular in the 2000s, takes the conflation of big
goals with big ideas to its ultimate extreme by suggesting that strategy starts
with setting a big, hairy, audacious goal. This came out of Built to Last,by Jim Collins and Jerry L.
Porras (HarperBusiness, 1994), a study of enduringly successful
companies. One of the supposed common denominators across these companies
was the best practice of setting ambitious goals. But big ideas never emerge
from a best practice — the latter is someone else’s solution, not your own.
Owning Your Strategy
Great strategies always go against the grain
of accepted wisdom. Markets and organizations have powerful immune systems that
erect multiple barriers to implementation. Leaders who own their strategies are
more likely to persevere through such resistance, and prevail. Great strategies
take leaders who believe enough in them — and the ideas they depend on — to be
willing to fight their own organization and the broader market for however long
it takes to realize the strategy.
For example, only Walton believed that you
could profitably serve small towns with a full-line discount store. Among the
dozens of auto company leaders in the early 1900s, Ford was alone in seeking to
“democratize the automobile”; everyone else was fixated on making better cars
for the wealthy few who could afford them. Sloan faced fierce internal
resistance to the pricing and style boundaries his branded-price-points
strategy placed on GM’s divisions. Gerstner had to resist loud, persistent
calls to break up IBM in order to implement his new strategy for the company.
Schultz was just an employee of Starbucks when he proposed his strategy to
build a chain of espresso bars for enjoying high-quality coffee drinks. His
bosses — the company’s founders — repeatedly rejected it, in large part because
they could not see U.S. customers paying for expensive espresso. Larry Page and
Sergey Brin sought to “organize the world’s information” with their idea to
rank Web pages the way academic publications are ranked. They started Google
because no one would buy their idea.
Capable strategists know that great
strategies are like children: You never love someone else’s as much as you love
your own. Thus, leaders must be their own strategist. In-house and third-party
experts can help you make your strategy great, and keep it that way. But the
choices that form the backbone of your strategy and the big idea that gives
your choices economic power have to be yours. You cannot delegate these to
anyone else, and simply be the chief “reviewer and approver” of their thinking,
inspiration, and work. This goes for boards, too. A board that sees itself as
responsible for the company’s strategy cannot then just sit back and give a
thumbs-up or thumbs-down to the CEO’s presentation.
There Are No Shortcuts
Strategy
concepts go viral when they resonate with a widely shared problem in the
corporate community. TQM came to life during the Japanese quality invasion,
business process reengineering hit it big in the wake of a recession, and
growth horizons and blue oceans arose during a time of high growth for tech
companies and growth stagnation for everyone else. Today, we are seeing the
rise of a new generation of popular strategies, such as lean startup,
disruptive innovation, digital
strategy, transient advantage, and agile strategy.
The conditions for wasting executive time and organizational energy are as ripe
as ever.
The
obvious solution might be to resist the ebb and flow of strategy concepts
altogether. But strategy can never stand
still. A great strategy can quickly become
mediocre in a dynamic market. You should always be seeking ways to open your
eyes to new possibilities for your strategies. Strategy concepts are one such
way if they stimulate your thinking without substituting for it, and if they
enhance your strategy without becoming it. Those are two big ifs.
To exploit strategy concepts without allowing
them to take over, consider each one that comes along to be an opportunity to
challenge and improve the strategy you already have. If you don’t already have
a strategy to which you are truly committed, you are particularly vulnerable to
being captured by the latest strategy fashion. If you do, ask how a new concept
can enhance it. But never let that concept become a shortcut: a way to
skip the hard work of identifying the big idea that will power your company’s
strategy; of formulating a unique, specific, and complete set of answers to the
“strategic five”; and of owning your strategy through thick and thin.
by Ken Favaro
https://www.strategy-business.com/article/Why-Popular-Strategies-Always-Fade?gko=8e3c9&utm_source=itw&utm_medium=20180213&utm_campaign=resp
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