One of my first jobs after b-school was a “strategy job.” I had to plan the future product lines for a small division in a big company. The industry would likely shift in one of four directions, but nobody knew which. Let’s call my four strategy options Blue, Red, Green and Purple. We only had the resources to pick one, so it had to be right.
To try and figure out the best strategy, first I used a “bottoms-up” approach involving a ton of meetings with industry experts, customers and vendors. The goal was to figure out what everyone was planning in the next two-to-five years, and position ourselves accordingly. The problem was, nobody else knew what direction the market would move either. We were all in limbo.
Making it worse, there were intelligent explanations for why each of the four futures were likely, and contradictory cases were made by credible experts. Since the experts didn’t agree, how the heck was I supposed to figure it out? My head spun with possibilities, theories, advice and technical details that could sway things one way or another. I may as well have thrown a dart.
There was so much clutter that I printed out a small sign for my cubicle wall saying “Volume x Margin = All that matters.” It became my mantra; a clarifying reminder of what I was really trying to accomplish beneath the complexity.
Next I tried a “tops-down” approach, paying a market research vendor that was the “Gold Standard” in the industry.
Their forecast for our industry looked something like this:
After staring at the forecast, I had a bright idea. “I know…” my inner voice said, “…we should do the Red product!”
Wow. What a brilliant insight (that’s sarcasm).
There were a lot of reasons Red now made sense… once I saw the report. For some reason, Red advocates now seemed more coherent than the other experts I’d been speaking with. The Red forecast looked best in my spreadsheets, which I knew would make my boss happy and help our project raise more money.
The “Gold Standard” report was good for CYA, because it’s halo of credibility would better avoid scrutiny, and if our forecasts ended up wrong I’d look less stupid (after all… I’d used the Gold Standard). Plus, I was on a deadline.
The report and its Red forecast also let us invoke the infamous “1% argument.” That’s when you say “even if we only win 1% of this market, it’s such a huge market that we’ll still be a big success.”
My team (and managers) rallied behind Red.
So did all our competitors.
When we announced our Red strategy, customers immediately began putting price pressure on us. It’s as if our group, and all its industry rivals, marched into customer offices the same week with the same Red strategy. We hadn’t built our first Red unit, but we were already being commoditized. Apparently our rivals had also seen the Gold Standard report and, having had the same epiphany, came to the same conclusion.
This process took nearly a year and felt like a ton of work. It involved lots of travel, discussion, strategic planning, coordination and buy-in from a wide range of stakeholders. There was argument, Thai food, whiteboard inspiration, Post-Its, spreadsheet work and lots (lots!) of PowerPoint.
Looking back now, years later, it turns out Red never happened. Instead, the industry moved to a different solution that wasn’t in our original four options.
This story is about the “default strategy.” That’s what I’m calling the rational process I experienced which unfolds in almost every big company on a daily basis.
It’s a lot of sound and fury that amounts to predictable mediocrity, or outright failure. There was an illusion of choice, but in reality I was just a mouse, looking for same cheese, in the same maze as everyone else.
We mice ended up at the same, predictable dead end. My personal (and organizational) biases, plus an inability to coherently manage market complexity, caused default to something highly defensible, but also stupid, obvious and wrong.
Recognizing the default strategy is a good first step towards avoiding its many pitfalls.
Here are five signs your organization may be in the throes of a default strategy:
The strategy boils down to following the “big line” on a market research report (like the Red line on the chart above);
People use the “1% argument”;
Your customers will take the new, shiny version of your product, but they won’t pay you more for it;
Finding a strategy your managers will understand (and like) is more important than finding a strategy that might actually win in the marketplace;
You think volume x margin = all that matters.
Strategy is supposed to be about predicting what rivals will do, then outmaneuvering them with something different that gives you advantages. It’s about risk-managing alternatives, complexity and options. It’s about combining moves across a dynamic landscape.
This is the case in chess, jiu jitsu, poker, and… yes… business. It’s about convincing your competitors you’re following a default strategy, like a head feint, while you secretly plot something else. The “something else” is what makes it a strategy, not just a reaction. In hindsight, I fell into the default strategy trap, which was the moral equivalent of no strategy at all.