Strategy is an essential ingredient for success. Without a clear, unambiguous, and well communicated strategy, there will be wasted effort, sub-optimal decision making, lack of alignment between functional responsibilities, and any number of other problems.
Therein lies the problem with strategy.
You spend time and money researching, developing, road testing and implementing strategy. You build a deep commitment to it, the CEO if he/she is doing their job well spends a significant percentage of their time building the engagement of all stakeholders in the strategy.
What if it is the wrong strategy?
What if one of the core fundamentals suddenly turns against you, or becomes irrelevant to the customer purchase decision?
Not only have you wasted the resources getting to that point, but the whole point is also to generate commitment. It is very hard then to turn around and say, Oh Crap, we got it wrong!
The inclination is to double down, work harder, not throw the sunk cost against the wall and change tack.
Blockbuster did not survive this challenge. Suddenly the core assumption that people would rent videos from a central location, then incur late fees when they finally brought them back, failed. When Netflix emerged as a subscription DVD by mail service, Blockbuster management saw it as an odd, fringe product that would never take on. Netflix management, virtually broke, offered to sell the business to Blockbuster for $50 million, an opportunity they declined. Technology caught up with Netflix, streaming became a viable option, and Blockbuster took only 3 years to go from king of the multi-billion dollar castle to broke.
Blockbusters strategy sucked. It assumed no change to the business model that had made them successful, could not pivot to a new model, and disappeared, because their strategy was wrong.
Kodak made the same mistake, and so did a local bottle shop that set out to compete with Dan Murphey’s on price and range.
Consider the strategic foundations of the current Australian Government’s commitment to the continuation of fossil fuel. Despite the spin of the last few weeks, their actions display that continuing commitment to the ‘Gas led recovery’ and options such as Carbon Capture and Storage, dismissed as fantasy by serious scientists. Business on the other hand recognises the inevitable failure of this strategy, and have been taking steps for the last few years to pivot their own operations. Now even the business lobby groups have publicly stated the government’s strategy sucks.
Tesla by contrast, founded in 2003, went public in 2010 for $17 a share. It took a few years before the strategy became an evidently powerful one. You could have bought a Tesla share in early 2020 for $70. That same share today is hovering around $1100. Tesla holds almost 80% of the US market for EV’s, 20% share worldwide. The market for EV’s is about 3% of total vehicle sales, but has doubled for the last three years: compounding is at work. All the major car manufacturers are fighting for a share, but I wonder if they missed the boat, In the US at least, you do not buy an EV, you buy a Tesla. A bit like Hoover, the brand becomes the verb describing the category.
The problem with strategy is that when it is well locked into the decision making and performance measurement of an organisation, it is very hard to change. Vested interests, personal, professional, and institutional all get in the way, and actively work against the change until too late.
To be effective, strategy also must be agile, subject to continuous evolution, as well as being the ‘North star’ of decision-making. The alternative is that you follow it into irrelevance at best, but often extinction.
Header cartoon credit: Scott Adams via the wisdom of Dilbert
