Strategic Drift: How to avoid losing competitive advantage
by Spencer Kleweno, on Jun 26, 2019 5:03:06 PM
What is strategic drift?
If you fail to adapt to your environment your business will suffer. Kodak’s failure to seriously pursue digital photography in favor of film photography, their established business line, plunged them into bankruptcy.
What caused Kodak to fail? They had the talent, capital, technology (they invented the first digital camera in 1985) and had close to a decade to adapt their business to the true demand of their customer: easily accessible photos without the hassle of purchasing film. Of course, hindsight is 20/20 and it’s much easier to understand trends 10 years after the fact, we've already written about some of the worst business strategies in another article. But their failure wasn’t overnight, management knew that digital photography represented a serious threat to their existing business and neglected the reality of their environment until they lost most, if not all, of their competitive advantage.
Kodak’s failure was rooted in strategic drift: the gradual deterioration of competitive action that results in the failure of an organization to acknowledge and respond to changes in the business environment.
Strategic drift can easily sneak up on you if you aren’t diligent. So, it’s important to understand the causes of this phenomenon and how to remedy the problem if you find yourself drifting. After reading this article, you’ll understand:
- The four stages of strategic drift,
- Why strategic drift occurs, &
- How to avoid it.
Four phases of strategic drift
- Blue line trending up – changing external environment
- Red line – strategic position of the organization
Phase 1 - Incremental Change
Incremental Change occurs before there is any significant change in the economy, technology, or customer demand (the external environment). Organizations make incremental change and remain in touch with the environment. There is no cause for alarm during this phase because there is little distance between external changes and the strategic action of the organization.
Phase 2 - Strategic Drift
Strategic Drift (the name of this phenomenon is also the name of Phase 2) happens when there is an accelerating rate of change in the external environment and the organization continues to operate as it did during Phase 1. Although the organization continues to make incremental progress, it’s not enough to keep up with the environment’s accelerated rate of change.
During this phase, the gradual effect on an organization can be quite insidious. Often, financial performance declines, and the decline and its cause (separation of organization from the external environment) isn’t fully recognized by senior leadership during this phase. Poor financial performance can be easily blamed on internal issues as opposed to the external environment. Strategic actions that were once enough for success is becoming gradually less competitive. The slower you react, the larger the delta between what you offer and what the customer demands, the harder it will be to transform.
Phase 3 – Flux
At this point, management can no longer ignore the gap between what their customers are demanding and what the organization is providing. The organization understands that they need to change. It’s likely that they will begin to alter their strategy. However, it may be difficult for existing management to agree on what exactly needs to change and how it’ll be done. After all, management still may not understand their environment and therefore the root of their problem; this issue is exasperated if the same management who found success during the organizations past, are present and still hold powerful positions. It’s difficult for individuals to grasp that what worked before, won’t work anymore. At this point, because the organization is so far behind, change needs to err on the side of transformational as opposed to incremental.
Often, there is not decisive action which ultimately leads to little progress. While management is caught in indecision, environmental change demand is accelerating and creating more distance between your offering and reality.
Phase 4 - Transformational Change or Death
The title says it all and leaves management with two choices:
- Decisive action to make a significant transformation in the organization – This could result in success or rapid failure.
- Continue your outdated strategy – This will result in dying a slow death. E.g. Kodak
For transformational change to occur you need management who are savvy, bold, and who have the foresight to recognize the direction that needs to be taken.
Why does strategic drift happen?
- Management complacency with inflexible perspectives for change – usually occurs when existing management has been with the company for a while and found prior success.
Established companies find success by identifying and establishing a profitable business model. If in the past, management identified and built a successful business model, they’re going to hold preconceived notions into how this market ought to work and what the customer truly values. This kind of inflexibility can stall much-needed change.
- Culture - groupthink environment
If your company has developed a culture that is highly agreeable or timid, you will not hear what needs to be said (E.g. “what worked before won’t work anymore because of x and we need to pursue y”). Groupthink occurs when groups strive to be in consensus with one another and is common when group members are very similar, when the group is led by a powerful and charismatic leader, and when the group is under extreme stress. Because stress runs in tandem with poor organizational results, it’s important to solve group dynamic issues sooner than later because groupthink will gradually become more difficult to combat.
- Failing to understand customer demand – marketing myopia
Organizations will encounter strategic drift when they’re nearsighted and spend too much time focused on producing goods and services and don’t spend enough time understanding what customers need/want. This lack of foresight is all too common and termed marketing myopia. Nokia for example, once a market leader in the mobile phone industry, lost significant market share to Apple and Android after assuming mobile phones are only useful for messaging and snake games. If Nokia would have focused on their customer, they would have seen their demand for GPS, flashlights, calculators, etc, and may have still been a market contender today.
This famous quote from Theodore Levitt, the economist who coined marketing myopia, summarizes the phenomenon nicely with the following quote:
“People don’t want a quarter-inch drill. They want a quarter-inch hole!”
In this case, if your organization is focused on making the best drill as opposed to making the best hole, you’re falling into a myopic trap.
How to Avoid it
- Develop an early warning system by establishing a regular cadence of external analysis
If you understand your external environment, you can identify and react to strategic drift before you’re in Phase 4: Transformation or Die. Like any problem, the longer it takes to recognize and resolve the problem the nastier and harder to solve the problem becomes. By conducting regular external analyses, you’ll have the ability to react to any of the trends in the external environment. If you’re short on time, it may be helpful to outsource this project to internal team members or consultants.
- Foster a fearless culture to prevent unhealthy groupthink
- Avoid managers giving their opinions when assigning tasks. Give people time to come up with their own ideas first
- Assign one individual of the group the be the “devil’s advocate”
- Consult outside parties for impartial opinions
If you'd like to learn more about groupthink, check out this article.
- Combat Market Myopia with a solid Vision Statement
When trying to assess your exposure to market myopia, it’s helpful to have a solid vision statement, to ensure your organization is focused on achieving your vision as opposed to the success of a single product offering or business model. If your product is no longer solving your customer's needs, you are likely not achieving your vision statement and in need of change.
- Encouraging organizational flexibility
Making changes, whether transformational or incremental, requires accountability and alignment. You’ll need to develop or acquire the processes and systems needed to communicate this change to your organization and then monitor this change. Instead of re-inventing the wheel, consider starting a free trial with Cascade Strategy. We have the software, guidance, and content in place for you to begin effectively combating strategic drift.