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How Bad Business Strategists Ignore the Elephant in the Room

How Bad Business Strategists Ignore the Elephant in the Room
July 6, 2021
How Bad Business Strategists Ignore the Elephant in the Room

“A business strategy is not just goals and objectives. It’s a cohesive response to an important challenge.”

Bad strategy is more than the absence of good strategy. It has a logic behind it and is built on mistaken beliefs. A company leader might as well ignore obstacles altogether because he or she believes that such negative thoughts shouldn’t get in the way of their vision.

Or they can believe the strategy is just goal setting instead of policy planning. Here are 4 things that make a strategy “bad” :

1. Fluff: Fluff basically means superficial statements of the obvious and combing buzzwords to give a “feeling” of heading forward to future growth and success. A strategy with fluff uses obscure concepts to create an illusion of higher-level thinking. For instance, review the statement below from a bank’s year-end statement :

“Our fundamental strategy is one of customer-centric intermediation”

Intermediation” simply means the act of “matching” lenders with savings to borrowers who need money. In other words, it’s a bank. The next buzzword being “customer-centric” means the bank seeks to offer better terms or better service to both depositors and lenders. And when it comes to policies, there’s nothing. The above statement is pure fluff. When you remove the fluff and buzzwords, you get a simplified statement — Our bank’s fundamental strategy is being a bank.

2. Failure to face the challenge: The purpose of a strategy is to set an approach to overcome a difficulty and challenge. Bad strategy fails to define the obstacles needed to overcome to get past the challenge.

International Harvester (now renamed Navistar International Corporation) was once the fourth largest corporation in the US, producing automobile and construction equipment. The company wasn’t doing well financially.

In 1977, the board assigned Archie McCardle as the CEO, who was once the president of Xerox. McCardle, in 1979, produced a strategic plan for the brand. The goal was to increase market share in each division (like industrial equipment). The result was a combination of 5 different strategies for each division within the company.

A graph showed the past profits and forecasted future profits if the plan was implemented. The evident problems — The big elephant in the room — was ignored altogether. The company had a grossly inefficient work organization such as,

  • the work culture allowed the senior executives to transfer jobs at will, resulting in a cascade of other transfers in the company.
  • The brand had poor labor relations which resulted in countless labor disputes, leading to the 1886 Haymarket riot in Chicago, where a bomber killed police and workforce at a rally. As a result, Harvester continued to have lower profit margins compared to its competitors.

McCardle managed to improve the profits for a year or two by lowering administrative costs. But later forced the company to endure a 6-month strike to obtain a better union. It failed. Soon after that, the company began to collapse, it ended up losing 35 of its 42 plants and terminating 85,000 workers. It sold its business units and got renamed Navistar. The company survives in the market as the leading maker of heavy trucks and engines.

Failure to identify the key obstacles, the strategy simply fails to address the major challenges for the company.

3. Mistaking goals for strategy: Bad strategy can become desirable goals (see below) rather than concrete plans to overcome challenges.

  • “We will be the №1 brand in our industry”
  • “We will delight our customers with unique and creative offerings”
  • “We will grow revenue by at least 20% each year”
  • “We will maintain a profit margin of 20%”
  • “We will foster an open and honest work environment”

These are like plain goals without any actionable plans backing them. Setting goals doesn’t mean there’s an actual strategy. To those who claim such big goals, they need to answers the vital questions such as

“What’s the point of leverage that the company has? What’s the core strength it will utilize to achieve the goals?”

Simply relying on motivation, goal-setting, courage, and boldness to get you there is a plan ready to fail.

4. Bad strategic objectives: They are bad when the objectives are impracticable and/or fail to address the major challenges of the company. There are two types of bad strategic objectives :

a. Dog’s Dinner Objectives: In a good strategy, the goals and objectives coherently target the underlying challenge and hence set places guidelines for resource usage. The success of on objective accomplished leads to a cascade of favorable outcomes.

However, in a bad strategy, the case is different. There’s a mess of unrelated objectives to accomplish in one plate — similar to a dog’s dinner. There would be a list of things to do, labeled as “objectives”, but they merely are a to-do list. Each stakeholder gives their view of what they’d like to see in the strategy. Complied together it becomes a total mess.

b. Blue sky objectives: Blue sky objectives mainly describe the desired outcomes or the current challenges, but there’s no direction or guidelines as to how to get there.

There can be an approach as to what is to be done, but if the objectives are blue sky, not much will be achieved. A good strategy should define the current challenge, bridges a gap between it and the actions — between desire and objectives.

The process of a good strategy

A good business strategy has a good structure to it. The structure above demonstrates 3 key phases of strategy development. They are explained below:

1.Diagnosis :

Defining the nature of the challenge and simplifying it by defining key obstacles.

2.The Guiding Policy:

Defining the approach to cope with or overcome the obstacles defined in diagnosis. Acting as a signpost, it marks the direction forward needed to come out of the challenge but doesn’t detail the turns needed to get there.

3.Set of Coherent Actions:

Setting actionable steps to carry out the guiding policy. These include resource commitments and coordinated policies to carry out the guiding policy.

Conclusion

A business strategy is not just goals and objectives. It’s a cohesive response to an important challenge.

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