CAMBRIDGE, Mass.–Many strategies fail because they are not actually strategies, according to a new paper published by the Harvard Business Review.
Authored by Freek Vermuelen, a professor of strategy and entrepreneurship at London Business School and the author of Breaking Bad Habits: Defy Industry Norms and Reinvigorate Your Business, the paper suggests many strategy execution processes fail because the firm does not have something worth executing.
“The strategy consultants come in, do their work, and document the new strategy in a PowerPoint presentation and a weighty report,” Vermuelen wrote. “Town hall meetings are organized, employees are told to change their behavior, balanced scorecards are reformulated, and budgets are set aside to support initiatives that fit the new strategy. And then nothing happens.”
Vermuelen went on to state that one major reason for the lack of action is “new strategies” are often not strategies at all.
“A real strategy involves a clear set of choices that define what the firm is going to do and what it’s not going to do. Many strategies fail to get implemented, despite the ample efforts of hard-working people, because they do not represent a set of clear choices,” he said. “Many so-called strategies are in fact goals. “We want to be the number one or number two in all the markets in which we operate” is one of those. It does not tell you what you are going to do; all it does is tell you what you hope the outcome will be. But you’ll still need a strategy to achieve it.”
Lack of Coherence
Vermuelen further said others may represent a couple of the firm’s priorities and choices, but they do not form a coherent strategy when considered in conjunction.
“Let me give you a better example. About 15 years ago, the iconic British toy company Hornby Railways — maker of model railways and Scalextric slot car racing tracks — was facing bankruptcy,” shared Vermuelen. “Under the new CEO, Frank Martin, the company decided to change course and focus on collectors and hobbyists instead. As a new strategy, Martin aimed (1) to make perfect scale models (rather than toys); (2) for adult collectors (rather than for children); (3) that appealed to a sense of nostalgia (because it reminded adults of their childhoods). The switch became a runaway success, increasing Hornby’s share price from £35 to £250 over just five years.”
What the company’s decision represented, said Vermuelen, was a clear set of just three choices, which fit together to form a clear strategic direction for the company.
“Unfortunately, in recent years Hornby abandoned its set of choices, to quite disastrous consequences, where it was forced to issue a string of profit warnings and Martin was encouraged to take early retirement. Without a clear strategic direction, any implementation process is doomed to fail.”
Other Points Raised
Other points made in the paper:
- Communicate your logic. A set of a limited number of choices that fit together — such as Hornby’s “perfect-scale models for adult collectors that appeal to nostalgia” — is easy to communicate, which is one reason you need them, said Vermuelen. “You cannot communicate a list of 20 choices; employees simply will not remember them. And if they don’t remember them, the choices cannot influence their behavior, in which case you do not have a strategy, but merely a PowerPoint deck.”
- It’s not just a top-down process. Another reason many implementation efforts fail is that executives see it as a pure top-down, two-step process, according to Vermuelen. “The strategy is made; now we implement it.”
- Let selection happen organically. “A common mistake in the bottom-up implementation process is that many top managers cannot resist doing the selection themselves,” he said. “They look at the various initiatives that employees propose as part of the strategy execution process and then they pick the ones they like best.”
- Make change your default. Finally, wrote Vermuelen, another reason many implementation efforts fail is that they usually require changing people’s habits. “And habits in organizations are notoriously sticky and persistent. Habits certainly don’t change by telling people in a town hall meeting that they should act differently. People are often not even aware that they are doing things in a particular way and that there might be different ways to run the same process.”