We previously talked about how our 35,000 daily decisions are all at least semi automated and this automation is the culprit behind the well known 70% failure rate in strategic initiatives.
This failure rate has spurred a debate about whether you prefer good strategy or good execution. Obviously the answer is both and the research does show that the underlying reasons behind failure comes from both camps. But what is striking is how everyday those reasons are – from misinterpreting the opportunity over not aligning competencies to forgetting to allow for external change. Not really rocket science is it?
Imagine strategists explaining to the board some years later: “yeah, execution was awesome, but we did not really understand what we were working on” or “everything was going great, until the market dared respond!”. But is it fair to tease strategists like that? Or is something else going on? Lets examine each of the five reasons identified by McKinsey:
- Opportunity misinterpretation. So you failed to fully comprehend the environment and strategic positions five years into the future. Well that is the job right? Maybe, but we are all – regardless of intellect, personality and background – subject to availability bias, where we focus on our existing information aka WYSIATI – What You See, Is All There Is. For example Blockbuster completely misunderstood, where the market was heading and kept investing in their brick & mortar network.
- Poor design. So you understood the opportunity, but failed to design a fitting strategy. One of the most devastating biases in decision making is confirmation bias, where we look for information to confirm our hypotheses. For example Blackberry had the same information as everyone else, but focused on keyboard phones for B2B communication, when market went to touchscreen B2C entertainment.
- Competency misalignment. So you understood the opportunity and designed a fitting strategy only to forget to align organizational structure, processes and skills. No biggie – boards habitually add substantially different work to existing organizations, as most people are prone to overconfidence bias, where we believe we do not need much preparation or resources to complete a task. For example Sony never lost faith in their proprietary Betamax technology, even as the open VHS standard was quickly outpacing them .
- Lack of follow through. So you understood, designed and prepared for the opportunity, but the organization never got it done. Well, we have a preference for status quo – an emotional bias. It might seem lazy, but imagine this “hypothetical” situation: You worked as a top performing manager for 10 years and seen many strategies with limited impact. Suddenly the board sends you a new approach after a strategy retreat. Do you a) try to implement the high level thoughts in the slide deck or do you b) continue to do what has made you successful for 10 years? This also happens at company level. For example Newscorp kept investing in MySpace despite major market share losses to Facebook and they eventually got USD 34m for at USD 580m investment.
- External change. You are in the clear – you got the strategy and execution right – but the world changed. When we commit publicly to a course of action, it is extremely difficult to change and we prefer to avoid any risk of losses. Thus it can take long – sometimes devastatingly long – for a company to change strategy. For example think of how long it has taken for traditional car makers to embrace electric vehicles.
So maybe it was not fair to tease the strategists. There are powerful biases created millions of years ago to ensure our survival that now prevent even the smartest of people from rational decisions – let alone the complexity of strategy. We need a new way of doing strategy…