Most Common Strategy Mistakes
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Mini presentation on the most common organizational strategic mistakes.
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Most Common Strategy Mistakes
- 1. Successful Competitive Strategy Common Strategy Mistakes Biggest Obstacles to Establishing and Maintaining a Competitive Strategy
- 2. The worst mistake, and the most common is not having a strategy AT ALL!
- 3. Strategy Mistakes “[Another] mistake is competing to be the best, going down the same path as everybody else and thinking that somehow you can achieve better results." Harvard Business School Professor Michael Porter
- 4. Moneyball: The Art Of Winning An Unfair Game The Oakland A’s had a $40 million payroll and were trying to compete with teams with $240 million payrolls. It forced them to say: “We can’t fight how the other guys fight. We have to search for new baseball knowledge. We have to re-examine the sport and where we place value.”
- 5. Other Mistakes • Overestimating strengths: there's an inward-looking bias in many organizations… • Getting the definition of the business wrong or getting the geographic scope wrong… Why do so few companies have really great strategies?
- 6. Biggest obstacles to good strategy? Previous paradigm = a failure to understand the competition… Really, there are more subtle and pervasive obstacles: 1.Biases in systems, structures, and decision-making processes 2.Incentive systems that reward the wrong behaviors 3.Human nature = really hard to make tradeoffs, or to stick with them 4.External strategy killers, e.g., industry experts, regulators, and analysts
- 7. Takeaways • Strategies fail from within, often. • Host of strategy killers in the external environment. • Strategy is not about making every customer happy. • Pursuit if short-term, shareholder profit = managers chasing the wrong goals. • Having a strategy in the first place is hard. • Maintaining a strategy is even harder.
Editor's Notes
- The worst mistake—and the most common one—is not having a strategy AT ALL!Most executives think they have a strategy when they really don't, at least not a strategy that meets any kind of rigorous, economically grounded definition.
- Most Common Strategy Mistakes1. Competing to be the best - going down the same path as everybody else and thinking that you can achieve better resultsValue Chains - Beginning with gathering basic resources and ending with delivering goods to customers, markets and businesses will optimize the value chain in order to deliver goods and services to consumers at optimal levels. A robust strategy requires a tailored value chain—it's about the supply side as well, the unique configuration of activities that delivers value. Strategy links choices on the demand side with the unique choices about the value chain (the supply side). You can't have competitive advantage without both.
- Most Common Strategy MistakesCompeting to be the best - going down the same path as everybody else and thinking that you can achieve better resultsExample:Oakland A’s GM, Billy Beane portrayed in the movie Moneyball based on Michael Lewis’s book.The book discusses Beane's methods as the GM of the Athletics and how he used cost effective economics to be successful despite economic constraints…He had to adapt a “New” way doing business in MLB in order to establish and maintain competitiveness – he couldn’t follow the same practices that the other competitive franchises did.
- Overestimating strengths - there's an inward-looking bias in many organizations.-A real strength for strategy purposes has to be something the company can do better than any of its rivals. -And "better" because you are performing different activities than they perform, because you've chosen a different configuration than they have.Another common mistake is getting the definition of the business wrong, or getting the geographic scope wrong.-Similarly, there has been a tendency to define industries as global when they are national or encompass only groups of neighboring countries. -Companies, mindful of the drumbeat about globalization, internationalize without understanding the true economics of their business. -The value chain is the principal tool to delineate the geographic boundaries of competition, to determine how local or how global that business is. -In a local business, every local area will require a complete and largely separate value chain. -At the other extreme, a global industry is one where important activities in the value chain can be shared across all countries.
- Previous paradigm - most strategy problems arose from limited or faulty data, or poor analysis of the industry and competitors.In other words, a failure to understand the competition…Really, there are more subtle and more pervasive obstacles to clear strategic thinking:Hidden biases in internal systems, organizational structures, and decision-making processesOrganizational incentive systems rewarding the wrong behaviorsHuman nature - makes it really hard to make tradeoffs, or to stick with themExternal strategy killers - such as industry experts, regulators, and financial analysts
- Many companies undermine their own strategies. Nobody does it to them, they do it themselves. Strategies fail from within often.There is also a host of strategy killers in the external environment. Strategy is not about making every customer happy.The single-minded pursuit of shareholder value, measured over the short term is enormously destructive for strategy and value creation = Managers chasing the wrong goal.Having a strategy in the first place is hard. Maintaining a strategy is even harder.