5. The Root-Causes of Losing Strategy and Its Cure

This blog is originally published as a sub-chapter of The G.O.S.P.E.L. of Strategy.

So many people fall into the Losing Strategy pitfall

Why are these seven losing strategies so pervasive despite the importance of strategy? Well, if we exclude the agency problem (i.e., people sabotaging the company’s strategy to serve their own interests), there are three reasons for this.

1. Strategy is a Severely Misunderstood Concept

First, according to the experts, many people don’t actually understand the true concept of strategy. They haphazardly label many things as a ‘strategy’ or ‘strategic.’ As a result, Strategy has morphed from a fundamental concept to become a meaningless buzzword. At the 2019 World Business Forum, I met Michael Porter, the father of modern management strategy. He shared his observations with me:[i]

• “Very rarely, companies understand this concept called Strategy…”

• “Strategy is a phrase often used very loosely… even though, in reality, it is a very specific concept…”

Without understanding the true concept of strategy, one will have difficulty identifying losing strategies. This is because identifying a losing strategy isn’t so straightforward (believe it or not: most losing strategies do seem reasonable). For the same strategic problem, different people will give you different recommendations. All of them can sound very sensible, e.g.,

• Problem: How to increase revenue by $250M in 5 years?

• Recommendation 1 from Manager A: “To increase your revenue by $250M, you need an online presence. E-commerce is the future.”

• Recommendation 2 from Consultant B: “To increase your revenue by $250M, you should enter China. It is a $10b market, growing at 15% pa.”

• Recommendation 3 from Board Member C: “To increase revenue by $250M, you can acquire Company XYZ. Its sales next year are projected to reach $250M.”

Which of these strategic recommendations are losing strategies? How can we know for sure? Obviously, we need to know more before we can decide. Even then, losing strategies aren’t glaringly obvious (if they were, many business people wouldn’t adopt them).

Strategy answer isn't straightforward. It is a problem of finding the best solution from all feasible solutions.

If only there is a set of simple principles that can help people understand the true concept of strategy and filter the losing strategies…

Without understanding the true concept of strategy, it will be very hard differentiating the winning strategies from the losing strategies

2. Strategy is Often a ‘Side Task’ for the Non-Experts

Second, strategies are frequently developed by people who don’t have expertise in strategy nor time for strategy. I have often seen this pattern: a Managing Director (MD) of a Business Unit (BU) is told to build a strategy by the Head Office within a short time frame. Then, the MD tasks the executive team to identify some initiatives (e.g., the Commercial Director to propose commercial initiatives, the Operation Director to come out with operational initiatives). Afterward, someone junior in the BU is asked to put everything together (as well as filling the PowerPoint and Excel templates sent by the Group’s Head of Strategy). And, voila, the first draft of the strategy is ready for review with the Head Office.

This pattern is precarious. Why? Because:

• While the BU executives are (hopefully) experts in operational/commercial management, they aren’t (usually) experts in strategy. Strategy development is a different ‘beast’ when compared to daily operations. To develop a strategy, the executives need to decouple themselves from the day-to-day paradigm and adopt a long-term perspective. They must be able to see what is possible beyond what it is now. They ought to see beyond the existing customers, the present offerings, and the current markets.

• Most of the time, the BU executives are also expected to run the daily operation smoothly (i.e., to do their ‘day job’). We all know that running day-to-day operations is a time-consuming activity. But so is strategy development. If the BU executives are busy already with their ‘day job,’ they can’t devote much time to strategy development.

Executives are often too busy with day-to-day operations

Does this mean it’s better if we task the Group’s Strategy Department (instead of the MDs) to develop the strategies for their Business Units (BUs)?

Unfortunately, the Corporate Strategy executives also face the same challenges. While they are (hopefully) experts in strategy, they aren’t (usually) experts of the BU’s specifics (i.e., they are ‘too far’ from the BUs). To develop a winning strategy, one needs to immerse oneself in the specifics of the business (e.g., the customers, the competitors, the industry trends, the internal politics, the operations). This kind of knowledge requires a time investment. But the Strategy Department executives are usually already too busy with Mergers and Acquisitions (M&A) activities, the bread-and-butter of corporate strategy. In that case, they also can’t invest much time in developing strategies for their BUs.

Corporate Strategy Executives are often too busy with BU Strategy

If only there is a set of simple principles that can guide the non-experts to develop an effective strategy quickly.…

3. Losing Strategy is Too Prevalent

Third, the rarity of winning strategies and the pervasiveness of losing strategies create a vicious cycle of losing strategy. How come?

Human is a natural-born copycat. We start learning from a very young age by copying others and making analogies from previous experiences (this phenomenon is called observational learning). All artists, even the masters, begin by copying. Similarly, all strategists also begin by copying. Since winning strategies are so rare while losing strategies are so pervasive, many strategists end up copying and ‘learning’ only the losing ones.

Even the masters begin with copying

Furthermore, since many of us get so used to losing strategies, we develop this inability to recognize the frequently seen losing strategies (this phenomenon is called perceptual blindness). In other words, we have seen it too frequently until we are conditioned for it! This is just how our brain works: we often don’t notice things that we frequently hear and see (e.g., the buzz of the background traffic, the hum of the refrigerator, the ticking of the watch). Our brain does tune out a lot. Only when our attention is then drawn to the sound, we begin to notice again.

If only there is a set of simple principles that can draw our attention to the fundamentals of winning strategy – so that we begin to notice losing strategies again...

The Cure for the Pandemic: Simple Principles

All of these root causes of Losing Strategy can be addressed if there is a set of simple principles that can guide anyone (including the non-experts) towards a winning strategy.

#R

Simple Principles are the Cure

Simple Principles can illuminate the darkness

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Fortunately, this set of principles exists. I call them the Guiding Principles of Winning Strategy. In The GOSPEL of Winning Strategy, we’ll discuss these principles.

Continue to explore the secrets of Winning Strategy here.

[i] I got these quotes directly from Michael Porter.