Top pitfalls of strategic management
1. Short termismMarks & Spencer fell prey to this in the late 1990s when it announced its target of becoming the first UK retailer to generate annual profits of £1bn. It had the desired effect on the share price. Unfortunately, there was a high price to pay. As the company geared its operations towards profit, a lack of investment in sales and infrastructure started to erode the company’s long term hold on its markets. Value-based rivals made off with the family silver and a profit warning followed in 1999. It was 2008 before M&S one again delivered a profit of £1bn. Succumbing to short-termism is a major risk, whatever size your business. For SMEs and entrepreneurs, it can be a pressure to focus on short-term results in order to impress stakeholders, backers and prospective employees. It is essential to prioritise long-term investment over short-term margins and to stay on track.
2. Ignoring external trendsA failure to pay attention to short term external trends – for instance, not properly tracking customer needs and understanding competitor moves/motives – will trip up even the best strategies. Research in Motion, the makers of the pioneering Blackberry, failed to respond to very clear market trends. By not moving beyond their traditional corporate sector, and their failure to both innovate and understand the app market lost them their position as the market leader. On the other side of the coin, Zara, the fashion retailer, is a business precisely in tune with its market. Zara’s ability to divine changes in taste among its clientele and then to satisfy them in a matter of weeks is legendary. They do this by continuously tracking market trends and customer preferences, monitoring the media as well as their own sales, and delegating the right people to spot trends. All of these tactics can and should be part of a business’ strategy, whatever size.
3. Overconfidence based on existing successEven in difficult and challenging markets, companies can overestimate the value of their business model, customer base and ways of doing things. Blockbuster is a clear example of a business that failed to move with the times and saw its business model collapse on both sides of the Atlantic. The message here is simple: you need to be ruthlessly honest. Otherwise, you may wake up one day and your business is gone.
4. Failure to respond to structural changes in the marketRefusing to acknowledge that structural changes are real can also lead to flawed strategic responses. When something new comes along, the answer is usually to move early, no matter how painful it might be. One of the more notable and public examples of this is Kodak – a pioneer and dominant focre in the photographic film market until relatively recently. In 1976 it held a 90 per cent share of photographic film, and Kodak actually pioneered digital photography technology in the mid-1990s but actively chose not to pursue this line of innovation because of the threat posed to the core photographic film business. The rest is history. Kodak has failed to turn a profit since 2007, and in February 2012 filed for bankruptcy. A sad end to a masterful brand. Kodak failed to follow one of the basic rules of strategy: if you are going to be cannibalised then it is, on balance, better to cannibalise yourself!
5. Failure to employ the best possible teamPutting up with a sub-par or mediocre team will make your strategy unachievable or sub-optimised at best. Companies should prioritise going after the best people and then motivating them to do extraordinary things. Focussing on management is usually the best place to start in any strategy.
6. Failure to focusHowever seductive proliferation and diversification are, a failure to ‘stick to the strategic knitting’ will take you off course. The key to avoiding this pitfall is to learn to say no. For example, Adidas added numerous brands and product lines in the early 1990s that clouded the company’s focus on sportswear. Failing profits followed, and it took a new management team to turn the company around and return it to its core purpose and build it into the world class brand that it is today.
7. Inability to foster belief in the strategyA failure to passionately and consistently reinforce the strategy will undermine it and belief in it will wane. Remember: memories of strategic announcements are short, but memories of strategic failure are long. Getting people to buy into your strategy makes it easier to implement and to implement well. Communication is therefore critical, and keeping it simple but convincing pays dividends.
8. Inability to translate the strategy into a corporate purposeIncreasingly, enterprises need an enduring purpose to inspire and motivate their people. The whole team needs to know that what they are doing matters to the company (and increasingly, to society). But how do you get employees to ‘buy in’ to the proposition without having to ‘buy’ their loyalty with high pay and expensive benefits? Instilling a sense of purpose has an enormous commercial benefit. Take Starbucks and Gap as great examples of brands that make an effort publicly to treat their employees with respect, provide career progression and emphasise links to the community, making them appear positive places to work. All of which are cheaper than offering five-figure bonuses – and also make us buy a lot more coffee and t-shirts for double the price offered elsewhere.
9. Failure to instil a sense of paceThere are countless examples of companies lulling themselves into a false sense of security about the speed at which they move. There is little upside, if any, in delaying once you are convinced that a certain reality is true. In terms of bad news in particular, it is usually the case that the sooner you announce it, the better. Act earlier – bad news seldom improves with age.
10. Failure to create accountability for resultsThe heart and soul of execution is accountability – it is this which motivates people to follow through on their commitments. It is essential with any plan that it is clear who is responsible for what, and that accountability is tied to results, not activities. This is essential because, while activity within an organisation is unceasing, it is only results that really matter. Chris Outram has been a strategy consultant for more than 30 years and the founder of OC&C Strategy Consultants. His book, ‘Making Your Strategy Work; How to go from Paper to People’ is published by Pearson and is available now at Amazon.
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