Common Misconceptions Regarding Business Strategy
Lies are not difficult to spot unless you have closed yourself off in a social-media echo chamber, except when the lie is big. People who hear or read big lies begin to doubt themselves and wonder if they are wrong. This is why propagandists and politicians tell big lies. They aren’t trying to claim a truth but rather to create doubt and confusion about the truth. This is bad. However, a smart person can see the evidence and resist big lies.
Myths can lead to a subtler, more dangerous trap than you are used to. They usually fall on a plausible half-truth, but they can lead you astray once you begin to act upon them. You will eventually realise you made a mistake. However, the damage can’t be undone.
Many myths surround human endeavours, including the discipline of strategic thought. These are five myths I have encountered over my long career of studying and advising companies on strategy:AS
Myth 1 - Strategy is about long-term
Why is it plausible?
Some industries have a foundation of competition that can be maintained for decades. Leaders who can stick to their strategy in all circumstances and ignore the noise around them will do well.
Why is it wrong?
Strategic changes are made when industry assumptions are challenged. These changes will have to be made quickly. You can mistakenly view strategy as a long-term commitment. Strategy is about the fundamentals of the business: the source of value, the drivers of delivery costs, and the basis for competition. We don’t need to extend the time frame of our thinking to grasp strategy. But we can increase its depth. Strategy is not about what we will do in the future. It’s about what we do now to shape the future.
Myth 2 - Disruptors constantly change strategy
Why is it plausible?
Amazon and other platform giants like Google, Facebook, and Google keep changing their strategies because they use the vast amounts of cash they generate to innovate and bring out new products and services yearly. Innovation can be confused with a shift in strategic direction. Sometimes, it can indeed cause such a change.
Why is it wrong?
Amazon and Big Tech are demonstrating that there is a consistent strategy behind all of their innovative products and services. This strategy has been known to businesspeople since at least 1960. Bruce Henderson, founder of BCG, noticed that costs decrease in many businesses, with each doubling of the cumulative volume. It was clear that pricing ahead to anticipate those price drops would allow a company to sacrifice its current margins to gain market share and position itself as a leader in the market. Then, they could reap the benefits of their increased profitability. The imperative summed up the strategy: “Cut price and increase capacity.” Platform businesses do this today, although they may use more fancy terminology like “blitz scaling” or “hyper-growth” and add some twists. Today’s imperative for platform businesses could be called “Give it away, add users.” It’s still a radicalised version of an older strategy, but it’s not new.
Myth 3 - Competitive advantage is dead
Why is it plausible?
Evidence suggests that the period of advantage that can be sustained is decreasing. This implies that it is more difficult to achieve defensibility, which, in turn, means that barriers are less strong and, therefore, easier to overcome. One market observer noted that the average tenure in S&P 500 fell from 33 years in 1964, to 24 years in 2016.
Why is it wrong?
The reports about the end of competitive advantage are exaggerated. Amazon, Alphabet and Microsoft have such huge competitive advantages and many obstacles to overcome that the public debate revolves around regulation to lessen their power. It has been difficult to see how market forces alone can control them in such a short time. It isn’t that competitive advantage has died, but you must rely on multiple benefits rather than just one. This is why Amazon & Co are so hard to beat. They don’t want to build one big wall but a series of smaller ones.
Myth #4: A strategy is not necessary. You just need to be flexible
Why is it plausible?
Start-ups and agile firms are known for their ability to change at will. It is easy to conclude that agile firms act quickly, at a high tempo and responsively.
Why is it wrong?
Agility is not a strategy. It is a capability that has immediate operational benefits but cannot be used to alter a company’s competitive position permanently. Only a strategist can make the right decisions about directing this capability. Even though there may seem to be no plan, this doesn’t necessarily mean successful start-ups lack strategies. Strategy is not a plan. It is a framework that allows for decision-making and principles that can be used as the situation changes. Most start-ups fail simply because they can’t turn on a dime. The most successful startups do much more than just think about the basics. They also question and test basic assumptions with a level of rigour that incumbents should be able to match. Because their resources are limited, start-ups must think hard about the fundamentals. They will make poor decisions about resource allocation, which will result in a drop in earnings and death.
Myth 5 - You need a strategy
Why is it plausible?
Digital technology allows you to collect, store, and use information. It is all around. It was able to improve on what we already did. It allowed us to do it much better. It enabled us to do things that we hadn’t done before. The possibilities are endless, but they can also be confusing. People feel lost and need clarification. They look for ways to sort things out, make sense of them, and decide what they should do. A digital strategy is, therefore, essential.
Why is it wrong?
The company is an organism. If you don’t optimise the parts, you’ll sub-optimise it all. A strategy for your business is optional for IT, finance, HR, or digital. You can’t just create a plan for digital and forget about the rest of your business. The impact of digital technology and the specific technologies it brings fundamentally change the customer’s value and the costs of delivering it. To address digital, you need to examine all assumptions about your business and determine if they still hold. That’s the essence of strategy.
Conclusion
Fundamentals are constantly changing in an uncertain world. We need to consider them and assess their validity over the long term. You can think about how to use the capabilities that you already have and create new ones to protect your competitive advantage. To create barriers, you can add them in layers. You can quickly make resource allocation decisions if you are clear about what is important. You should be alert for unexpected events at customer interfaces that could point out opportunities that can easily be exploited. You can win the short games and be successful in the longer ones. To act quickly, think deeply. Strategy is the art of acting when you are under pressure.
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