Friday, November 11, 2016

Why Most Strategies Fail: Reason #2

I recently saw a blog by the Cascade strategy software company entitled “The 5 Reasons Why 70% of Strategies Fail.” You can read it here.

Since I disagree with their conclusions, I decided to write my own blogs on why strategies fail. I came up with three major reasons. The first reason why most strategies fail is because they are too internally focused at the expense of an external orientation. I covered that topic in the first blog.

The second major reason why strategies fail is because they focus too much on “doing” rather than “being.” That is the topic of this blog.

In an earlier blog I started by looking at children. Children don’t talk about what they want to “do” when they grow up. No, they talk about what they want to “be” when they grow up. Strategists need to imitate children by asking what their companies want to be in the future rather than what they want to do in the future.

“Being” Keeps You Relevant
Why is a focus on “being” so important? One reason is because the world is full of change. Technology changes, competition changes, social norms change, and so the list goes on in so many areas. The cumulative impact of all of this change causes behaviors and actions which used to be right and normal to appear quaint and obsolete.

Just think of all the change resulting from the internet or the smart phone. They have turned many conventional behaviors on their head. The right behaviors before the internet and the cell phone now look so add and out of place. This is one reason why many millennials cannot tolerate watching old movies and TV shows. The activities in these old shows seem so wrong or odd from the millennials’ modern perspective that they cannot relate to them.

This is why a strategic focus on “doing” can lead to failure. If you do the “right thing” for a long enough period of time, the changing world will eventually make it the “wrong thing.” Your strategy becomes obsolete and you fail.

Just look at Kodak. It didn’t matter that Kodak perfected the way to do analog film. Digital imaging made that type of doing obsolete. A strategy that finds the best way to do something is worthless when customers no longer want you to do it.

That is why focusing on “being” is so much better than a focus on “doing.” “Being” transcends a changing environment. For example, if instead of focusing on “doing” film, Kodak had focused on “being” the best solution for capturing memories, it could still be a thriving company today.

There is always a need to capture memories. The best solution may vary over time, but a solution will always be needed. If you focus on the big picture of what you want to stand for in the marketplace (your choice of what to be), you will remain relevant. By contrast, if you focus on what you want to do, you will become irrelevant.

Example: Wal-Mart
Over the decades, Wal-Mart had had a relentless focus on what it wanted to be. It’s founder, Sam Walton, wanted the company to be the best at offering retail value, starting first in rural communities.  Back in the 1950s the best way to “do” that was with variety stores. So Sam Walton operated Walton’s variety stores.

By the late 1950’s Walton could see that discount stores were becoming a superior solution for being the best at offering retail value, so he abandoned doing variety stores and began to do Wal-Mart discount stores.

In the early 1980’s it looked like warehouse clubs could be an even better way to be the best value provider, so in 1983 the first Sam’s Club was opened. By the late 1980’s Walton could see that supercenters had the potential to be a better value than either discount stores or warehouse clubs, so he stopped doing discount stores and started doing supercenters.

Now, shopping by smart phone appears to consumers as the best value, so Wal-Mart is pushing very hard to become a major player in that space.

Through it all, Wal-Mart has changed many of the ways they have done things. But it has stayed true to what it wanted to be: the best value in retail. By focusing on the being rather than the doing, it has survived around seven decades, whereas most of its competitors (who focused on doing) during that time have disappeared.

“Being” Increases Preference
Nearly every wildly successful brand creates a meaning and purpose which transcends the current product offering. It is this added purpose which causes customers to want to identify with the brand. 

As we talked about in the prior blog, successful strategies create natural preference without resorting to bribes. When your company becomes something grander that customers want to be identified with, they will prefer your brand and pay a premium to do so.

Think of Nike. It does not make shoes. Others own the factories and do the work.  Nike focused instead on being the embodiment of what is aspirational in athleticism. Anyone wanting to identify with that aspiration became attracted to Nike and was loyal to them.  That strategy allowed Nike to successfully expand into many athletic areas beyond shoes while charging premium prices.

BMW’s success is not due so much to “doing” automobiles as to “being” the purveyor of “the ultimate driving machine.” Everything BMW does is focused on this higher level of being. Those desiring to be associated with that type of being flock to BMW and pay a premium for the privilege.

Apple’s success has far more to do with the being it represents than the products it offers. It became the essence of coolness and hipness. Those who also wanted to be seen as cool and hip flocked to Apple.

This is not just a consumer products thing. Back in the days of the big mainframe computers, IBM won the day. It was not just because IBM was good at doing mainframe computers. It was that they created this aura of professionalism and service which transcended the product. It impacted everything all the way down to the professional-looking dress code of the service technicians who came to the customer’s building for repairs.

IBM executed becoming this sense of being professional and reliable so well that there was a saying back in those days that “nobody ever lost their job recommending IBM” for their company. It was the brand IT professionals wanted to be identified with.

Being Needs to Influence Everything
As IBM and other successful brand show, strategy focused on being is a lot more than just a clever slogan or public relations. It has to become a consistent way of life for the entire organization. The corporate culture has to have a similar sense of being. Every facet of the business has to reflect that sense of being, from product design to customer service to how the brand interacts with society.

Steve Jobs made sure everything in every area of what Apple did lived up to what the brand wanted to be. Similarly, there is no tolerance at BMW anywhere for something that is not driven towards being the ultimate driving machine.

These companies show that success comes not from a completing a list of tasks but from an integrated approach aimed at becoming something with a much higher purpose that permeates the essence how a company sees itself. This goes well beyond just a check list of tasks. It is an exercise in identity management.

Dire Consequences When Strategy is more about Doing than Being
When doing dominates strategy, activities are drawn towards performance metrics rather than how a company is perceived. As long as you do what it takes to meet the performance metric, you are rewarded. Unfortunately “what it takes” can destroy who you are.

For example, Wells Fargo got so focused on the task of doing more multiple account activities that it lost sight of its role to be a financial institution preferred by its customers. The result was that Walls Fargo angered its customers by opening many accounts in the customers’ names without their approval. Now they have a big mess to clean up.

Similarly, Volkswagen got so hung up on doing whatever it took to get good diesel mileage ratings that it resorted to lying and cheating. This severely damaged Volkswagen’s ability to be the type of company customers want to identify with. And now they are paying a steep price (in both money and image).  

Warning Signs that Your Strategy is on a Path to Failure
So, what are the warning signs that one is more focused too much on doing rather than being?
First, how seriously do you take your business mission? Do you even know what you want to be? Does your mission explain a higher reason for being that customers will want to identify with or is it just some clever phrase? Does the company try to live out the mission or is it just meaningless rhetoric?

After the collapse of Enron, I talked to many former employees looking for a job. They all said that Enron had a business mission paper explaining the essence of what Enron wanted to be. It was called RICE and it stood for Respect, Integrity, Communications and Excellence. However, they also said that Enron totally ignored this paper.

Instead, Enron became one thing: a place for doing whatever it takes to increase short-term stock price. The incentives all hinged on doing that one thing. So that is what people did. At the extreme, it became illegal stock manipulation.

This leads to the second warning sign: what do you measure? Wells Fargo, Volkwagen and Enron were measuring an activity (adding cross accounts, increasing fuel economy, raising stock price) rather than measuring how their being was perceived in the marketplace. This destroyed their strategy.

That is why I see KPIs as a necessary evil rather than a salvation for strategy. KPI’s tend to focus on doing, because doing is easier to measure and attribute to an individual. Too many and too much focus on these doing-related KPIs lead to the problems at Enron, Wells Fargo and Volkswagen.
Instead, we need more measurement tools that look at how we are managing our image and sense of being that we want customers to identify with.

The third warning sign is how a company reacts to the changing environment. Does it change with the environment so that its being remains relevant (like Wal-Mart) or does it stick with improving the old process and become obsolete (like Kodak)?

A fourth warning sign is a strategic process where corporate culture is not integral. As the saying goes, “culture eats strategy.” Ignore culture at your own peril.

Depending on which study you look at, somewhere between 60% and 90% of strategies fail. If we don’t address the deep-seated reasons why strategies fail, we will not be able to raise the percentage of strategic successes. I believe that there are three major reasons why strategies fail and my reasons do not always agree with conventional wisdom. The second reason I believe most strategies fail is because the strategic effort is too focused on doing rather than being. Real success occurs when everything about a company reflects the reason why customers would want to identify their sense of self-worth with the identity of your brand. This requires a strategy that is rooted in knowing what your represent (your sense of being) and what type of culture is needed to personify it. Otherwise, employees will do the activities that boost personal gain and destroy the brand and the strategy behind it.

If you don’t look in the mirror, you won’t know how attractive you are. A key role in strategy is to be the mirror, so that the company can see how attractive it is becoming to its customers

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