All
too often management decisions are made from an initial gut feeling or
intuition. While there has no doubt been a number of very successful business
people that just seem to know when something is coming or an idea has special
qualities, this is not the correct way to go about planning strategy. Not only
because personal intuition lacks knowledge of outside forces, but because that
methodology has no way to be repeated and each business case becomes a gamble
with potentially disastrous consequences.
In
their article, “Seven Ways to Fail Big,” Paul Carroll and Chunka Mui go into
detail on how to avoid a lot of the pitfalls that come with making strategic
choices void of research and planning. Specifically, three aspects discussed in
their paper directly relate to concerns of intuition:
- The Synergy Mirage
- Pseudo Adjacencies
- Bets on the Wrong Technology
As companies grow and try to carve out a market niche, it is
often easy to think that “if only we were bigger, we would be even more
successful.” This mindset combined with decisions lack of evidence often ends
badly due to a lack of actual synergy where connections were thought to exist. I
recall reading about the intended buyout of Chrysler by Daimler-Benz in mid-1998
[1]. At the time it was billed as a merger of equals and a move to bring larger
market share in their respective countries. However, almost from the start, differences
in culture and vision resulted in poor performance. Instead of growing overnight,
the company spent the next 10 years trying to recoup the initial expense,
ending with an unceremonious announcement of a split where Chrysler declared
bankruptcy protection and requested $4 billion in US federal funds to remain in
business. In that time, the initial value and market share when from $36 billion
to just over $5 billion when eventually bought out by Fiat in 2009.
Similarly, companies often inaccurately associate given
success in one are to mean there is an ability to succeed in other places. However,
most product sectors are very specific and require a deep understanding of the
industry and market place before jumping in. This is often the case with companies
in the food service industries. As competition moves into an area, the natural
decision is to expand menu items and services to try and maintain customer base.
However, the opposite typically takes place and the expanded menu selections
result in a watered-down version of the initially successful restaurant. For
example, McDonald’s started with a menu containing only nine items: Hamburger,
Cheeseburger, Shakes, Fries, and five different beverages [2]. As competition
from other restaurants began, the chain added chicken products, fish products,
breakfast items, specialty burgers, and so on. With each iteration the company
changed its initial vision and added complexity. Now, while McDonald’s is still
in business and not technically failing, a number of companies like Five Guys,
In ‘n Out, and others have filled the original, limited menu burger chain
space, and McDonald’s continues to see serious concerns over maintain labor
force, market-share drop, and lower sales growth [3].
Lastly, companies trying to find a place in a market often
look to new and creative technology solutions to help get a foot in the door. However,
pushing forward with new and unproven technologies often result in slow, or no
growth. This exact issue has come up twice in my lifetime with regards to video
technology – first with VHS vs Betamax tapes, and then about a decade later
with HD DVD vs BluRay Discs. In both cases, companies identified a need in the
industry and a strategy to bring their product to market. However, an
understanding of the underlying technology behind the products lead to massive
infighting for a standard and resulted in years of customer apathy while companies
fought over an agreed upon format [4]. While Toshiba put millions into
development of the HD DVD format, their focus on producing a format to compete
with Sony’s BluRay format. However, without understanding that Sony already had
the market for drives in both xBox and Playstation consoles. As a result, a
continued effort to force the HD DVD into households was handicapped from the
start and resulted in major profit losses and lost trust from the consumer.
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