Popular Misconceptions of Strategy

4229 reads

The subject of strategy is unique for the many misconceptions managers carry. Here are just three, and what you can do about them. 

The fallacy of first mover advantage 

1. First mover advantage is a fallacy dearly held. That is why many start-ups and young companies rush in before they have developed an effective strategy. 

Moving first makes sense when it creates entry barrier. In some industries alarge production capacity acts as a deterrent for others. In 1999 Reliance commissioned the world's fifth largest refinery in Jamnagar (India), with installed capacity of 27 million TPA. Reliance's cost advantage pre-empted green-field investment in refining in South East Asia for nearly a decade. 
 

 
Learning curve advantage, and the opportunity to quickly establish a preferred brand are other conditions when moving early can create competitive edge. Titan watches created a huge entry barrier by moving early and building an enviable reputation. In most other situations, especially where entry barriers are low or threat of substitutes high, moving first is seldom salutary.
 
 
 
 

Companies like Panasonic have made a virtue of moving late. They wait for early players to create a market; then move in with their own products or acquisitions. 

Price is not a differentiator 

2. 'Price is our differentiator' is another mistake. It usually means lower price. Several years ago, a large manufacturer of abrasives, nearly set-off a price war when they decided to drop prices of products that were facing heat from small regional players. Fortunately, a strategy overhaul workshop led to the initiative being abandoned. They concentrated on a broad portfolio of products for many segments and grew rapidly over the next 7 years. 

Price cannot create differentiation. Differentiation succeeds when customers perceive a product's value proposition to be distinctive. A firm can price its product appropriately to reinforce uniqueness. Tanishq claims a premium for the design value of its jewelry. BMW cars are priced high to reflect superb engineering and driving experience, and so on. 

Assuming price to be a differentiator can lead to undue emphasis on a single element - one among 4 or 5Ps of marketing strategy - and backfire. 

Innovation is not strategy 

3. Innovation is the NEW strategy. No firm, it seems, wants to be left behind in the race to be the epitome of innovation. 

Strategy is doing things differently or doing different things (Porter). Configuring value chains in unique ways to achieve cost advantage or differentiation over competition is strategy. 

A firm can find innovative ways to achieve cost advantage: Foxcon on production systems for outsourced manufacturing. Apple has innovated product design and development to create unique products. Sigma Aldrich, the specialty chemicals company, has applied innovation to achieve differentiation through how they work. These companies have consistently surpassed their peers in growth and financial performance. 

Innovation is imperative in crafting strategy but it is not strategy. 

When assumptions become beliefs 

Misconceptions are insidious. They take root as assumptions and become collective beliefs. Confirmation bias sets in and becomes difficult to eliminate. A solution is to keep erroneous beliefs from germinating by regularly training managers on strategy. It is most effective when they simultaneously understand the firm has a clear and effective strategy. 

Develop your own point of view 

Every firm that wants to avoid contaminating managers' thinking of strategy must develop its own point of view on what will make it competitive. That is a responsibility top management must not ignore. 

Trending

190
jackcanfield's picture

Try This Simple Night Meditation Called “The Evening Review”

Successful people maintain a positive focus in life no matter what is going on around them. They stay focused on their past successes rather than their past failures, and on the next action steps that will get them closer to the fulfillment of their
97
adamgrant's picture

The Two Traits of the Best Problem-Solving Teams

You want teams that are cognitively diverse and psychologically safe. A variety of thinking styles—coupled with the freedom to take risks without being punished—enables groups to generate, test, and implement creative ideas.Imagine you are a fly on
123
changethis's picture

Making ‘Agile’ Business as Usual

“There is more to Agility than putting lipstick on a pig. Organizations that attempt to migrate to Agile approaches need to take accountability for their 'inner pig.' Any sector can espouse Agile practices, such as SCRUMS, Sprints, and Stand-ups.
114
danielhpink's picture

Things: The secrets of high standards and happiness

1. WHAT TO READ: Can you teach high standards? Each year, Amazon founder Jeff Bezos — whose current personal net worth exceeds the GDP of nearly 150 nations — writes a letter to shareholders. Most corporate missives are snoozers, but Bezos’s is
151
mashable's picture

Google just slashed the price on its massive storage plans with Google One upgrade

Google's storage plans are getting cheaper. The company has launched a new storage plan called Google One, which offers significantly better deals than Google Drive storage plans. There's no need to switch, because all current Drive storage
412
changethis's picture

Start Imagining a Future of Human + Machine

“In the first wave of transformation, businesses standardized processes. Think Henry Ford and the assembly line, where steps in the overall process were broken down, measured, and optimized to achieve gains in efficiency. The second wave of
157
davecrenshaw's picture

How far would you go for a friend?

I recently witnessed an act of compassion and friendship so unexpected, it moved me to tears. And it happened in a very unlikely place: Pelican Bay super-maximum security prison. I support a program called Defy Ventures, an organization that works
155
johnsullivan's picture

Here We Go Again – LinkedIn Updates Its User Agreement

There are times in my life when I hate that I am right about something. Like the time I thought an employee was stealing from my store back in the day and two days later I caught them doing just...
292
changethis's picture

How Women Rise: Helping Women Change the Behaviors that Get in Their Way

“It’s not surprising that many of the behaviors that hold men and women back would be different. After all, women often have very different experiences at work. And experience shapes habits and responses.Familiar habits and responses may feel