30 Jan The cost of poor business strategy
“Good business strategy is significantly less cost and risk than poorly planned and executed business ideas”
What business strategy is
In the last blog we discussed what ‘business strategy’ is and attempted to provide insight into some concerns associated with the development of strategy including incomplete thinking, partial adoption of elements of business strategy, poor stakeholder involvement, planning, and implementation.
In this blog I would like to expand the theme just a little more and show how some of these issues can lead to significant risk, unnecessary cost, and missed opportunity.
A good business idea
A company who asked for assistance strongly believed that their ‘business case’ (a perceived good return on a potential opportunity) was a business strategy. At face value this looked like a reasonable opportunity for generating income, however, the opportunity was not a business strategy as such and neither was it core to the existing competency and operation of the organisation.
The supposed business strategy was not focussed nor was it leveraging the existing resources. In fact, it required a totally different business model and expertise not currently available in the business. As a result, there was confusion amongst employees with regard to the business direction, it had the potential to distract and dilute resources, posed significant increases in risk and cost, and missed opportunities through not aligning with and further penetrating its existing market. We say do ‘easy’ wins first.
What is it we are financing?
A senior Finance Manager insisted that their strategy (undocumented) was the profit and loss statements, and cash flow forecasts for the business. Whilst financial planning is of course very important to the organisation, it should be underpinned, and be driven by a good business strategy. The financial models that were offered up were in fact not a business strategy at all and the financial plans were not mapped to wider opportunities available in their existing marketplace.
“But we have always done it this way” – this was a case of people not knowing what they don’t know.
A great idea but not a reality (yet)
One last example is where an organisation diversified, established a new business and spent a couple of years developing new products. Unfortunately, due to delays associated with getting the product to market the investment support was pulled leaving an estimated million dollars in debt (actual amount not disclosed), disappointed stakeholders, and unrealised potential with the new products. Whilst the parent organisation did have a fairly sound business strategy, the new business did not. Perhaps if all key stakeholders of the new business had participated in a business strategy process, the time to market, financial outlay, commitment required, and associated risks would have been much better understood and would have possibly prevented this loss and waste.
In science they say that energy cannot be destroyed, rather it is transferred from one form to another. And in this case, I think we will see these products offered by someone else in the future as it was far too good a product to not be brought to market.
Get professional advice
Just hold on a minute before you say that I am being too negative about the efforts that these good people have made. I believe that most people are trying to do their best. In fact, to their credit some of the individuals went far above the call of duty and put their own blood, sweat and tears on the line to bring these ideas to fruition.
As part of good project management, we should at least conduct a ‘lessons learnt’ exercise at the end of the project. The examples provided above are great case studies as they help us all to learn and improve, and hopefully prevent us from making similar mistakes again in the future.
It is true that good business strategy requires a reasonable investment of the organisation’s time and a little bit of money also, but it is significantly less cost and risk than poorly planned and executed business ideas.
Let us know if you have any other case study examples as we would be interested in hearing from you and learning from your experiences.