10 Common Strategy Mistakes
Developing a Sustainable Strategy
We tend to assume that large organizations are too big to fail. Press releases often boast of how well a particular company is doing. It might have launched a new product, for instance, or expanded into a new market segment, or increased its share of an existing market.
It can therefore come as a surprise when, just a few months later, the same company is in the headlines again. This time, it's because things are not going so well, and it has made a loss or announced layoffs.
Declines like these often happen because an organization has made mistakes with its strategy. In this article, we'll explore some of the most common of these.
10 Common Strategy Mistakes and How to Avoid Making Them
In 2011, Joan Magretta, a colleague of renowned business strategy theorist Michael Porter, published a book called, "Understanding Michael Porter: The Essential Guide to Competition and Strategy," which sets out several of his main ideas about business strategy.
Our list of 10 common strategy mistakes is largely based on these ideas. Read on to find out how you can avoid them.
1. Failure to Create a Distinctive Competitive Position
Porter says that a successful strategy is largely based on a company's ability to carve out a unique position for itself in its market.
This means that there must be something about your product or service that makes it unlike anything else available. Being distinctive and unique means that your rivals can't easily copy you, and a lack of cheap imitations means that you can command a fair price for your product and earn a sustainable profit.
If you don't have a clear idea of what makes you unique, carry out a USP Analysis or a Core Competence Analysis to identify the factors that make you stand out in your market, and explore what you can do to protect your uniqueness from your competitors.
If you fail to keep your product unique and instead choose to compete head-to-head with a rival, Porter warns that you may end up weakening your position.
2. Focusing Too Much on "Operational Effectiveness"
Porter warns that "operational effectiveness" – also known as "best practice" or "execution" – is not enough to make a strategy successful, nor will it likely give you a sustainable competitive advantage.
Many companies believe that simply copying a successful rival's product and undercutting it on price (which they might achieve by making efficiency savings in their supply chain, for instance) will automatically result in a sustainable profit.
But Porter notes that, once a company establishes an efficient practice, its competitors will be quick to change their own processes to ensure that they stay "neck-and-neck" with it. This means that, as a result, none of them will likely achieve a significant gain over one another.
Operational effectiveness is therefore not enough. Instead, you'll need to make sure that your proposition is unique while, at the same time, executing your strategy well enough to achieve superior performance over your rivals.
3. You Can't Please Everyone!
It's almost impossible to be "all things to all people." If you offer too many products and target too many market segments you'll spread yourself too thin, and your strategy will likely become costly and unprofitable.
Having a coherent strategy means deciding what market segments you will and will not target, and, therefore, what customers you'll likely disappoint.
According to Porter, many managers still believe that "more is better" when it comes to expanding across market segments and, as a result, they may resist making trade-offs when it comes to developing a more targeted strategy. They might feel as though they should be able to "do it all," and that making such trade-offs is a sign of weakness.
So, set your pride aside when developing your strategy! And remember that a clear and focused strategy is one that involves deciding what you won't do as much as what you will do.
4. Failure to Deepen Your Strategic Position
Many companies fall into the trap of thinking that they have to broaden their offering to stay competitive. But it's extremely hard to gain market share in an area where your organization has no experience, no supply chain, and no competitive advantage.
Instead, Porter recommends that businesses take a more focused approach that aims to satisfy their existing customers' needs more deeply.
One way of deepening your strategic offering is to practice customer intimacy. When you do this, you learn as much as possible about your customers, so that you can meet their specific needs. This allows you to carve out a more distinctive niche, and will also likely result in a lean, focused and cost-efficient supply chain.
Deepening (rather than broadening) your position can help you to protect your profits from being eroded. If your product has a good reputation, then rivals will likely avoid competing with you directly and will opt to serve other segments of the market instead.
After all, there would be little point in launching a product that mimics yours and uses the same supply chain, as this will only serve to drive down both of your prices and, therefore, your profits.
5. Engaging in Activities That Are a Bad "Fit"
Many companies, Porter observes, fail to consider what he calls "fit" – the organization's integrated and value-adding business systems which, together, amplify its competitive advantage. This might, for instance, include activities that reduce your costs or that enhance the value of your product or service.
These activities form what Porter calls a "value chain" – a chain of activities that a business performs to create value for its customers. It's important to review your own value chain regularly, to ensure that you are maximizing your product's or service's value to your customers.
Swedish furniture chain IKEA®, for example, offers a number of elements designed to maximize the value of its core offering. These include:
- Huge stores.
- Warehouses within stores.
- Out-of-town locations.
- Ample free parking.
- Items sold in flat packs.
- In-store cafeterias.
- In-store childcare.
The value of IKEA's products is amplified by their easily-transportable, flat-pack construction and packaging, which is in turn amplified by its stores being in car-friendly locations. This is a perfect example of "fit" in action.
To achieve "fit" in your organization, make sure that your activities are as connected as possible. Do this by ensuring that each business choice you make complements your other activities.
According to Porter, there are three types of action that you can take to increase your fit:
- Consistent actions – each activity is aligned to the value of your product or service. If, for instance, your aim is to produce cheap clothes, don't offer too many variations, as this will likely drive your prices up.
- Complementary actions – the value of each activity is raised by your other activities. Netflix®, for example, is made more valuable to users because it offers a comprehensive user ratings system alongside its core online video streaming service.
- Substitute actions – by performing one activity you can eliminate other, more costly activities. For instance, IKEA's full-room product displays and its detailed product tags mean that it doesn't need to have sales assistants on the shop floor.
6. Incorrectly Defining Success
A strong strategy is one that's built around generating sustainable profits, not simply gaining market share. Yet many companies still celebrate short-term sales increases or push their staff to achieve small gains in market share.
But doing this is unlikely to bring you long-term success, explains Porter. An automobile manufacturer could easily increase its market share if it were to sell its cars for a dollar each. But that doesn't mean that it's a smart business decision, or that it will result in high profits!
Instead, Porter recommends that you measure your success by ROIC (return on invested capital), which weighs the profit that a company makes against the capital invested in it by its shareholders.
According to Porter, ROIC is more accurate than other measures, such as return on sales or shareholder value, in showing how well your company is using its funds to generate returns, and whether its strategy is sustainable.
7. Changing Too Much, Too Fast
Managers are often bombarded with advice on how to deal with the accelerating pace of change, or how to overcome resistance to change. Porter argues that this has led to a popular misconception among business leaders that they must be seeking to make changes wherever possible, all of the time.
However, while it's important to keep up with new customer demands, evolving technologies and new market entrants, continuity is also essential to a good strategy.
Continuity helps to strengthen your brand, build customer relationships, and solidify your reputation. All of this takes time, but it is time well spent if you want your brand to stand out from the crowd.
8. Being Pressured to "Be the Best"
One of the things that Porter says often gets in the way of clear strategic thinking is pressure from analysts, industry experts, consultants, investors, and even regulators to compete aggressively to "be the best."
Analysts, for instance, may advise you to model your company on a current market leader. Consultants might show you how to benchmark yourself against your rivals. Or they might push you to enter a market that they believe will be the "next big thing," despite the fact that several of your competitors have already had the same idea.
In actual fact, there's little evidence to suggest that trendy new markets are able to support all of the companies that end up "jumping on the bandwagon."
These well-meaning influences can often lead you away from your core objectives and damage your strategy's unique quality. In fact, trying to adopt every new technology or trend that comes your way will more likely quickly erode and undermine your key objectives.
Try instead to stay consistent and, remember, what's "in" today can just as easily be "out" tomorrow.
9. Debating Strategy for Too Long
It's important to explore your options and talk them through with key people when defining your strategy, but eventually you will need to make a decision.
Once you've finalized your strategy, you may find that some people still don't agree with your approach, especially if it involves shifting funding away from their department.
Try to avoid spending too long debating such points. While it's important to get as many people on board as possible, Porter suggests that you may have to accept that some individuals will no longer have a role in your company once you have committed to a particular strategy.
If this is the case, it's important to let these people go. If you allow dissenting voices to stay for too long, it can create a negative energy and lead to confusion. You need to ensure that everyone in the company is as excited as you are about its direction.
While letting people go can be difficult, it can sometimes be a necessary part of developing your strategy. However, this doesn't mean that you should implement your strategy without properly consulting with your people. It's still important that you spend time persuading them of the value of your strategy and explaining how they will fit it into it. Encourage an open atmosphere, so that people feel that they're able to collaborate and speak up.
10. Failure to Communicate Your Strategy to Everyone
The people who work for your company have important decisions to make every day. Salespeople are calling potential customers. Marketing staff are crafting the copy that will represent your brand. The development team is exploring emerging technologies to find out which of them will be most useful to you.
Each of these activities will need to fit into your wider strategy, so you need to ensure that your key messages are easy to explain and remember.
Porter has observed that successful leaders regularly give "mini-speeches" that reaffirm their company's strategy. Try, for example, starting company-wide meetings with a reminder of your key objectives or explaining to your people how current projects and activities link back to them.
Regularly reminding your people of your core mission will help them to see how their work contributes to the "greater good" and will better inform their everyday choices. This, in turn, will help to ensure that you are all staying on track with the company's wider goals and objectives.
OKRs and the OGSM framework are useful strategic planning tools that can help to keep your staff heading in the right direction. Both can allow you to link each of your people's activities to the company's core strategy.
Business strategy expert Michael Porter suggests that achieving a good, sustainable profit is the key aim of a successful strategy and that this is best achieved by being unique. To successfully execute your strategy, you must avoid making several common mistakes.
Resist the urge to try to please the entire market. Instead, decide which customers you will and won't cater for. Then concentrate on developing a product or service that deeply satisfies your target market.
Be wary of advice from investors or business experts that urges you to benchmark yourself against your rivals. Porter warns that copying a competitor will likely result in a poor strategy. Instead, concentrate on making your proposition a truly unique one, and ensure that all of your people are clear on its key objectives.
Based on findings from "Understanding Michael Porter: The Essential Guide to Competition and Strategy" by Joan Magretta, and published with permission from Harvard Business Press. For more on Michael Porter's ideas, search our site for "Porter" using the magnifying glass button at the top of this page.