Wednesday, November 9, 2011

Why do strategies fail?

Strategies are formulated for the benefit of the company. Managers of the company are focused towards positioning the company in such a manner that they are able to create a valuable position for themselves. So, why do strategies fail?

To answer this question, I would refer to the definition of the strategy once again. It says that strategy is  The creation of a unique and valuable position, involving a different set of activities, and creating fit among those activities.” We can break this definition in three parts – “Creation of a unique and valuable position”, “involving different set of activities” and “creating a fit among those activities”.

Creation of a unique and valuable position requires compromises and tradeoffs. If a company is focusing on producing baby products, it creates a niche in that market. Its brand name and values are dependent upon that segment of market the company is focused upon. The company has the potential to expand its market segment. If the company decides to do so, it would loose its niche and would not be respected because of the baby products. The similar case happened with Neutrogena, when it moved from medical products to cosmetics. There is a tradeoff that the company needs to consider before expanding. The niche is created because the company is producing unique products. If the company diversifies, it is not always necessary that niche would still be maintained.

Coming to the second part, i.e. involving different set of activities. Mostly all companies are dependent upon coordination and collaboration between different set of activities. So, managers focus on optimizing these processes and tend to set this task as their strategy. Optimizing these processes may reap monetary benefits but this won’t add to the value of the company. The company’s competitors can copy this technique if it’s the best. So, this won’t enhance the uniqueness of the products.

Thirdly, “creating fit among those activities”. This simply means striking a balance between the activities involves in the whole process. Continental lite was not able to mimic southwest airlines because it lacked in balancing its activities. It started a low cost airline but failed to reduce the turnaround time hence the cost went up. This is the reason why most companies fail to copy the strategies of its successful competitors because they are not able to maintain the consistency.

According to Michael Porter, “Strategy' is a word that gets used in so many ways with so many meanings that it can end up being meaningless.” Often managers confuse strategy and aim at becoming market leaders or acquisitions or mergers. This leads a company into the rat race of competition where all the companies in the market try to do the same thing. So, this does not add in maintaining the unique identity of the company.
On similar lines, vision and goals of the company should not be confused with strategy. Anything that increases the economic value of the company does not necessarily add to the position of the company. In fact, many companies are undervalued for a long time. To concur, strategy of the company should not be quantitative as increasing the share value but the strategy of the company should go hand in hand with the goal of the company.

Lastly, I would like to highlight the role of leaders in implementing the strategy. Earlier, corporate strategies were kept under wraps so that the competitors are not able to mimic the same. But this is one of the greatest barriers towards implementing the strategy. To implement a strategy, the company needs to make all its employees aware of it so that they are able to channelize their efforts towards it. Hence, a leader who is bold enough to face the challenges and inspire its employees becomes must for a company to succeed.

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