FAIL (or part 5?)

Today I have been...

Reading about why so many companies fail at strategy

Why?

Final part of Porter's Article "what is strategy".

So What?

Porter asserts that many companies either fail to have a strategy, have managers who fail to make strategic choices, or allow their strategy to decay.

He says there's a view that threats to strategy are seen to come from outside, eg from technological factors or strengthened competitors, but that this ignores the greater threat to strategy from within.

If you're a long way from the productivity frontier, you're comfortable. If you're well run you can beat ineffective rivals without making any trade-offs. Indeed, the suggestion is that to trade-off is to lose face.

If you're worried about hypercompetition, what do you think will happen if you imitate your competitors? It may become a self-fulfilling prophecy! We've all seen technology chased for its own sake.

You probably see operational effectiveness as a tangible, achievable thing. By putting in place the right actions you can get there.

There's a link to contingency theory as best-practice is shoved down your throat by consultants and magazines, telling you all about what other companies are doing. If you're focused on achieving OE, how much thought are you giving strategy?

Conventional Wisdom Homogenises Competition

Does "Customer Focus" mean serving all customer needs or responding to every request?
How important is preservation of flexibility?

Making tradeoffs is daunting. Porter says companies imitate each other in a herd-like fashion. Newly empowered employees often lack a holistic view and are unable to recognise tradeoffs. Would you want to disappoint your colleagues? You may feel that no choice is better than a possible wrong choice.

You would have thought that the concept of trade-offs and limits are bad. If you explicitly include certain groups of customers to focus on one group, surely you are limiting your potential? If you differentiate on quality won't you lose your price-focused customers?

Porter argues that if you end up being influenced by these issues and trying to address them you end up blurring your strategic position. You end up being pressured to extend product lines, imitate competitors and even make acquisitions. This is an interesting point as I hear the OU is currently considering entering the UCAS system to try and steal some of the post-A-level student market.

By trying to compete in multiple ways, original target customers may be alienated. The message to employees becomes confused and this will affect motivation. You end up seeking greater revenues to compensate for decreased margin.

Often, rivals continue to match each other until desperation breaks the cycle, resulting in a merger or downsizing to the original positioning (Porter in the Reader p59)

Porter suggests that the basic premise is that you should be focusing on deepening your strategic position. This should preserve and reinforce strategy while still providing growth. Broadening and compromising strategy will only introduce weaknesses. Look at ways to extend your existing strategy. This allows you to take advantage of the fit of your existing activities to provide goods/services/uniqueness/differentiation that rivals would be unable to match on a standalone basis. This means working out which activities, features, services etc are less costly or more feasible for you to perform than one of your competitors because of your activity mix.

Your activities should become more destinctive and you should strengthen their fit.

Your strategy should be communicated to customers (those who value it).

 Don't succumb to the easy growth temptation! Make sure that growth options you explore fit to and preferably enhance your strategy (or adapt them to do so).

Porter suggests that Globalisation is one possibility to consider.

One way to grow through broadening without diluting or blurring strategy is to create standalone units with their own brands and distinct activities. But be careful not to end up creating an umbrella company just for the brands, with shared technology and resources. You end up with homogenisation (and I would add you may end up competing with yourself). I note that this may well apply to companies such as BSH (Bosch-Siemens Hausegeraete) which manufacture many of the same products under the Bosch, Siemens and Neff badges.