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How to Spot a Bad Strategy
By Mark Graham Brown
We’ve all been in those planning meetings where we begin by reviewing
our company’s strengths, weaknesses, opportunities, and threats. Typically
there is a much longer list of strengths than there are weaknesses, but
companies seem to be getting more realistic these days and are willing
to acknowledge that they are not good at everything. Once the goals or
objectives have been established for the next year or two, the real hard work
begins in coming up with strategies for success. There are often multiple
strategies for a single goal. For example, a client had a goal of going from
$400 million to $600 million in sales in the next three years. Industry data
indicated that there was plenty of demand for their services, so this was a
realistic goal. The company ended up with three key strategies for achieving
their growth goal:
1. Increase share of business. Get more work from existing customers.
2. Acquisitions. Investigate and purchase smaller competitors or other
companies who are in different markets/geographies.
3. International. Focus on marketing to and acquiring new international
accounts in Asia and South America.
How to Spot a Bad Strategy
Coming up with strategies is hard enough. Even more
difficult is coming up with realistic and accurate ways
of evaluating whether or not the strategies are the
right ones. In this article, we will explore some of the
practices that tend to work well when evaluating
strategies, as well as the most common mistakes
organizations make when assessing their strategies.
We’ll start out by examining some of the errors and
follow up with a review of the best practices I’ve seen
in business and government organizations.
Mistake #1: Failure to
Get External Opinions on
Strategy
Deciding on strategy is often more an exercise in
politics than logic and reason. The executive team
may brainstorm a list of possible strategies for
achieving the goals, but it’s funny how the ones
that make the short list are almost always the ones
suggested by the CEO. Once in a while the CEO
does not try to control the decision and it’s a more
democratic process, but in these cases it is usually the
person who can argue and present his/her case the
best who gets to select the strategies. Regardless of
how the decision making is done, though, it is always
a wise idea to get the council of some outsiders.
Perhaps your board can provide advice on picking the
right strategy, but sometimes they are even to close
to the situation and there is always the political factor
operating with board members and executives as
well. Most organizations have a handful of consultants
or advisors who know their company well and who
they can call on for honest advice about whether or
not they have picked the right strategies. I would take
the time and spend the money to get at least two or
three outside opinions on the strategies you have
selected before settling on them. This will be money
well spent if the outsiders can point out some risks or
flaws in your choices. The danger with this approach
is doing it when you have already made up your mind
and don’t want to hear anything that is contrary to
the strategies you have already picked. Therefore,
it is important to get this external input when the
strategies are still in the idea phase, and probably
before some big off-site planning meeting. This can
provide you with some of the data you present when
discussing alternative strategies.
Mistake #2: Measuring
Strategies With Activity
Metrics
A pension organization I worked with had a strategy
of balancing their investment portfolio to manage
risk better. One of their metrics was the number of
meetings with investment advisors. Another was
the number of research papers written on different
investment options. A second client had a strategy
of growing sales through innovative new product
designs; this was a fashion-oriented business, so
it sounded like a great strategy. However, they
measured the strategy by counting activities like
time spent with customers, trade shows attended,
and milestones completed on design projects. A third
client had a strategy for improving communication
with employees that focused on a newsletter, briefing
meetings, and employee website. They measured
the effectiveness of the communication strategy
by counting metrics like butts in chairs at briefing
meetings, the number of newsletters distributed and
web site hits. When they measured the effectiveness
of communication the following year, it actually got
worse. I tried using Google ad words as a marketing
strategy for my consulting and training business; I
paid Google $400 to $600 every month to make sure
Mark Graham Brown showed up on the first page if
someone did a search on “performance metrics” or
“Balanced Scorecard”. I got close to 1,000 hits per
month, which people told me was excellent. I did
this for six months before realizing that not one of
those website hits translated into dollars in business,
or even a good hard lead. The big mistake all of
these organizations (including my own) are making
is to judge the success of a strategy by measuring
milestones, activities, or behaviors associated with the
chosen strategy. You can complete all the activities on
time and in the right number and still not achieve the
goal.
Mistake #3: Measuring
Strategy With Only
Outcome Metrics
This is probably even more common than tracking
activities as a way to tell if you’ve picked the right
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How to Spot a Bad Strategy
strategy. For many organizations, the only way to tell
if a strategy worked is to look at lagging outcome
metrics like revenue, profits, or market share. It’s true
that often these things are the ultimate goal or reason
for the strategy. However, by the time you find out
if the strategy worked, it is too late if this is all you
measure. This mistake is much more prevalent in
business than in the non-profit or government sector.
They tend to be happy with activity or “program”
metrics. The people who run the “Say No to Drugs”
program are happy to track metrics like eyeballs
that view their TV commercials or billboards, school
programs conducted and buttons distributed. They
don’t want to be accountable for the fact that drug
use has steadily risen as has spending for the “Say
No to Drugs” campaign. Business people want to see
outcomes that are usually measured in real dollars.
I’ve run across many large corporations that measure
the success of their strategies by only looking at
outcomes that are water under the bridge. In other
words, by the time we realize that the new office
in Singapore was a bad strategy we have already
lost millions of dollars. The success of any strategy
is ultimately judged by the outcomes it produces.
However, waiting for those outcomes and only
measuring success with outcome data often makes it
impossible to spot a bad strategy until it is too late.
#1 Best Practice for
Spotting Bad Strategies Logic!!
It’s amazing to me how little thought and logic go
into many strategies I’ve seen in big organizations.
Often the overall goals for growth, market share
and profit are handed down from on high by the
executives, board, or parent organization. We usually
don’t have much say in these, regardless of how
stupid they might be. For example, I remember
talking with a well-known Fortune 100 technology
firm right after the internet bubble burst in the
mid 1990s and they still had a goal of 50 percent sales
growth over the previous year! The best and easiest
way of spotting a bad strategy is logic and reason.
It’s hard for outsiders to understand how some big
smart organizations can make such stupid decisions
sometimes when coming up with strategies.
Apparently some of these strategies are decided
on without much in the way of a logical analysis.
Some organizations rely on the nice diagrams with
circles and arrows called “strategy maps” to think
through their strategies. These diagrams are created
in flipcharts with a team of experts and they look very
scientific, but most are nothing more than a series
of broad assumptions drawn on charts with arrows
used to indicate causal relationships. For example, the
sequence goes something like this: If our end goal is
growth in profits, then we need more loyal customers
who give us more business. In order to improve
loyalty, we need greater customer satisfaction. To
achieve greater customer satisfaction, we need high
levels of engagement from our employees. To achieve
that we need to do a training workshop to teach
every employee how they can contribute to improved
customer satisfaction and loyalty, and thus profits.
Whew!
Sounds good right? So the flaw here is that no one
is asking for evidence or even a logic test to evaluate
each of the assumptions or theories in this strategy
map. How, for example, can a training workshop lead
to higher levels of engagement from employees? If
people are disengaged because they are overworked
and mostly have idiots for bosses, no training
workshop is going to change that. If customer
satisfaction does improve, how do you know that will
lead to more loyalty? If loyalty does improve from
some of your worst customers, this could result in a
decline in profits. The bottom line is that someone
needs to evaluate your strategies with a critical eye
and Mr. Spock logic to test all of the assumptions that
have been made and ask for data/evidence to support
them.
#2 Best Practice for
Spotting Bad Strategies
- Lack of Knowledge/
Experience/ Success
It’s funny how when companies get big they start to
think they are good at business, and that any business
that comes along they can make successful. This
directly contradicts Jim Collins’ findings that great
companies stick to the knitting. In other words, stick
to what you are good at. The further you stray from
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How to Spot a Bad Strategy
your roots, or what you currently do, the greater your
chances for failure. We’ve seen this time after time.
Anheuser Busch is great at making and selling beer,
so they come up with a growth strategy called Eagle
Snacks (pretzels and chips). The strategy capitalizes
on their core competences of manufacturing food
products, distribution, and marketing to consumers.
It would seem to be a pretty easy transition, but
it wasn’t. Eagle Snacks eventually failed and the
remnants were sold to Frito Lay. One of the simplest
ways of spotting a bad strategy is to compare the
strategy with the organization’s track record for
success. This is what scares most people about a
government-run healthcare system. The government
is not very good at running anything, except perhaps
the military. The Medicare system is already crippled
by paperwork and bureaucracy and a strategy of
having the government run the entire healthcare
business seems doomed to failure.
Strategies should be selected based on the likelihood
that the organization can make them work. The
chances of any strategy being successful do include
factors like luck and timing, but experience is
probably the most important variable. This is where
outsiders are sometimes valuable because they can
ask the hard questions like: “What makes you think
you can pull this off when you have never done
anything like this before?” It’s hard to ask questions
like this when you are inside the organization – you
might be viewed as not being a “team player”.
#3 Best Practice for
Spotting Bad Strategies Better Strategic Metrics
One of the best and most scientific ways of spotting
bad strategies is to come up with a suite of metrics
or an index metric that drills down to lower-level
indicators of success. Here’s a great example: A
consumer-products company has a growth strategy
that depends on establishing a tighter partnership
with a few key successful retail customers who stock
and sell their product. The success of this customer
relationship management strategy is measured
with a “Customer Engagement Index”. The index
includes a number of hard and soft measures of
the strength of the relationship, including factors
such as shelf space, use of the consumer-products
company as consultants, turnover of key customer
contact personnel on both sides, customer profit
margin, customer satisfaction, brand strength,
and relationship with competitors. The consumerproducts company is able to measure customer
engagement on a monthly basis to evaluate the
success of the relationship building strategy.
Another client had a growth strategy linked to
innovative new products. New products sometimes
took three to five years from concept to market, so
the company developed an “Innovation Index” that
included the following sub-metrics:
• Employee perceptions and beliefs regarding risk taking
and innovation;
• Ideas/suggestions passing through first, second, and
third screens;
• Milestones met on innovation projects;
• Patents;
• Industry firsts;
• Awards, rankings, recognition;
• Sales and margins from new products.
The key to coming up with a good strategic index
metric is to make sure it includes the following types
of sub-metrics:
• Inputs;
• Processes;
• Outputs;
• Outcomes.
The input and process metrics are the leading
indicators that help tell you the strategy is a good
one, but the ultimate success of a strategy is
determined by the outputs and outcomes, which are
lagging indicators.
Summary and Conclusions
Business textbooks are filled with all sorts of strategies
that were colossal failures: Daimler-Chrysler, Time
Warner/AOL mergers, New Coke, diet pills that give
you uncontrollable diarrhea, spray-on hair and lots of
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How to Spot a Bad Strategy
companies branching out into new products and
markets and cultures where they don’t know what
they are doing (EuroDisney!). The most important
dimension of any approach to spotting bad strategies
is speed. Organizations need to quickly detect a bad
strategy in the first month or two, change course, and
come up with a new one. Waiting until the end of
the year to see if any strategy is a success dooms you
to failure. Ask for outside opinions on your chosen
strategies, test their logic, pick strategies that link
to your past successes, and measure the progress
of each strategy with a suite of leading and lagging
indicators.
About the Author
Mark Graham Brown has 30 years of experience
helping business and government organizations
measure and manage performance. His current clients
include the U.S. Navy, Medtronic, Eagle Systems, InterAmerican Development Bank, and Nestle Purina. Mark
is the author of a number of books on performance
measurement, including: Performance Management
Pocket Guide (2010). Mark has his own consulting
practice in Manhattan Beach, California and may
be contacted at [email protected] or via his
website: www.markgrahambrown.com
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