By Manie Bosman
While many authors on the topic of why strategic plans fail seem to agree that bad execution is the primary culprit, blaming failure on those who were supposed to “make it happen” is perhaps a a too easy way out for the “visionaries” on the top floor. Paul Carroll and Chunka Mui (authors of Big Blues: The Unmaking of IBM and Billion Dollar Lessons) are probably the world’s foremost corporate failure experts, and they believe that flawed strategies were in fact the biggest cause of failure. Studying 750 U.S. business failures over a period of 25 years, they concluded that most “avoidable fiascoes” resulted from seven “risky strategies”:
- The Synergy Mirage: Companies trying to expand by amalgamation with another company which has complementary strengths, often discover the whole isn’t always better than the sum of its parts.
- Faulty Financial Engineering: Aggressive financial practices are risky, and can cause brands, reputations, and whole enterprises to implode. 3- Stubbornly Staying the Course: Blindly increasing investment in existing strategies in response to market changes can be disastrous.
- Pseudo Adjacencies: Adjacent-market strategies try to build on core organizational strengths to expand into a related business. This includes marketing new products to existing customers, or existing products to new customers, or marketing via new channels.
- Bets on Wrong Technology: Technology-reliant strategies are inspired by the potentially large rewards for those able to develop breakthrough-products or services, such as Google, eBay, and iPod. However, many of these strategies were destined for failure from the start.
- Rushing to Consolidate: When industries mature, the number of players decreases. Those left standing often attempt to increase capacity, lower overheads and get buying and pricing control through consolidation. For various reasons, this often leads to their own demise.
- Roll-Ups of Almost Any Kind: The idea behind roll-ups is to combine large numbers of small enterprises into a large one with more buying power, larger brand recognition, lower costs, and improved marketing. However, according to the research, more than two-thirds of these ventures were unsuccessful to generate any value for investors.
Although these seven strategies are not always bad ideas and have in fact generated considerable wealth for some companies, they’re dangerous for being appealing in ways that can tempt executives to ignore signs of impeding danger. It seems that this once again confirms what I’ve stated in previous posts on this blog – that strategic plans without strategic thinking can be a sure recipe for failure in today’s dynamic and fast-changing environment.
Carroll, P. B, & Mui, C. (2008). 7 Ways to fail big. Harvard Business Review, September, 82-91.