Why do business strategies fail? They’re developed by smart, insightful, and motivated people. That shouldn’t be a formula which results in over 70% going belly up. Yet it does, with most doing so within six months of completion. Popular convention focuses on two causes of failure:
- people flaws
- and, tool flaws
If any of the following statements sound familiar you’ve been caught in the slip stream of a bad strategy discussion.
- We had it nailed on paper, how could we have been so wrong?
- Why is the business is only making a fraction of the profit potential we projected?
- Something needs fixing but we can’t see a flaw in our plan.
All valid concerns that need to be address, however, the real question is why do smart business leaders choose bad strategies. When I asked this of my contemporaries here’s what I heard.
- There is often confusion between a vision and strategy. A vision is more an entrepreneurial twitch, it’s not grounded in analytics rigor and is often the whim of one or two key stakeholders thus subject to a high failure rate.
- Businesses often underestimate the scope of what needs to be achieved.
- The culture gets in the way; resistance to change, an inability to execute, or people alignment.
Additionally you might hear:
- We’re to short term focused, it’s hard enough to have people focus on next year yet alone the next three.
- Around here strategy planning is viewed as important but not urgent so it ends up on the shelf gathering dust.
I have a hard time buying this for one simple reason. Everyone knows the above and yet 70% fail year in and year out. I think a more comprehensive expiration is simply that those selecting the strategy to follow truly beleive that it’s a good strategy. Think about it, no rational business leader would choose a bad strategy. So why is this so and what factors contribute to this?
Do Strategies fail or are they faulty?
Yes… and here are three flags that indicate trouble ahead. Overconfidence. This is the primary killer. We tend to think that we know more than we do. As a result we place the boundaries of what could happen in the world narrower than what they are. Thus we are often burned by the highly improbable. None of us are immune it is just part of human nature, we all do it. Don’t think so, Nassim Taleh, wrote a whole book based on this premiss. Perhaps you heard of it “The Black Swan”. This tendency is particularly evident when the focus of discussion is on our business or industry. Here are some of the reasons that we’re overconfident:
- We’ve been up and down the block dozens of times; seen it all.
- I’m the owner, I’m supposed to know.
- This is what I live and breath ( …a little scary but that’s another subject for another to handle).
Oversimplification. Additional faults include simplifying the analysis by eliminating variables such as:
- Competitor re-actions to our strategic shifts
- And, changes in customer perceptions
Claiming full attribution. On the back end we run into the risk of attributing the outcome completely to the strategy when there are a lot of things that impact results that are independent of the strategic path taken. Thus the real problem is that:
- we utilize methods that to a great extent ignore computers and customers
- and, explain complex effect with simple causes
What we can do to increase the likelihood of success.
“Until you recognize that you haven’t seen it all, that you can’t even imagine all the opportunities, that cynicism is a set of blinders meant to keep you in line, you are definitely correct: you can’t innovate” – Jeffrey Phillips
The ability to look forward and reason backwards is enormously valuable to strategic decision-makers. By incorporating the following into our planning process we can make better decisions when faced with uncertainty.
- Scenario Planning – used to help predict significant changes in the external environment, especially when change is rapid or information is limited. It’s not about predicting the future but about determining what is plausible.
- Brainstorming – helps generate creative solutions, particularly when one wants to break out of stale, established patterns of thinking, so that new ways of looking at things can develop.
- War Games / Simulation – used in situation where planning failure will be costly; utilizes an opposing team to depict what competitors are most likely to do as a reaction to your plan.
They work because it forces us to evaluate different perspectives by:
- overcoming pushback and contrarian thinking
- providing the discipline to think through and differently about the entire environment
Thinking is the key. Great decisions are what we want. And, great decisions come from your great decision making. And, your great decision making is the product of your great thinking. Your great thinking should specifically include:
- stress testing your hypothesis via war gaming or scenario planning
- determine what it takes to execute then decide if the organization has the assets and right attitude
- breaking down the strategy into plans and tactics so that they can be incorporated into day-to-day operations
- thinking about how to put into place real-time feedback
- and, committing to pivot plans and tactics as your core assumptions are proven valid… or not
How do you handle it?