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Common mistakes to avoid when making strategic decisions
17-Dec-2009
Rapid changes in the competitive forces that
shape industries are forcing business leaders to deal with more complexity than
ever before - and they are being forced to make tough strategic decisions that
will profoundly impact their company’s future success.
Here are some the common mistakes to avoid when making strategic decisions –
inspired by an article in Chief
Executive:
Tunnel vision
Powerful leaders who are used to getting their own way tend to downplay
opinions and evidence that conflicts with their point of view. This also
happens when leaders have an emotional investment in following a particular
course of action (including a self interest in preserving the status quo).
Silencing the critics
We tend to listen to the optimists and people who agree with us - and shun the
pessimists and people who disagree with us. Without hearing balanced
arguments for and against a course of action, leaders can be tempted to gamble
without properly considering the downside consequences.
Gut instinct
Instinct and emotions can easily mislead us into making irrational
decisions. Our first impressions influence us more than we think.
To make better decisions - put aside your preconceived ideas of what “seems
right” at first glance. Seek out contrary opinions, and try to consider
all the options objectively. Reassure everyone that you really want their
honest input and to hear opinions that differ from your own.
Phantom synergies
A common error is to focus blindly on meeting financial growth targets.
Growth for the sake of growth is not strategy. Some leaders force
acquisitions, seeing phantom synergies when there aren’t any. Or they
make brand line extensions - which may increase revenues in the short term, but
cause long term brand damage. Or they offer too many products and
services to be able to do them all justice, short changing those with the
highest growth potential.
Hoping history will
repeat
Just because a strategy worked in the past – does not mean it will apply to the
complex challenges of the future. Luck may have played a bigger role in
the past than you give it credit for.
Overconfidence
Studies show that 75% of people rate their automobile driving ability as above
average or excellent. CEO’s tend to do likewise - and such overconfidence
can lead them to ignore warning signs. Leaders overestimate their ability
to control their companies and effect external outcomes.
Planning for yesterday
Many companies are planning to win yesterday’s war. Frequent and careful
analysis of the competitive forces that shape industries must be undertaken –
because the rapid pace of structural change means the ground can quickly shift
under your feet.
Throwing good money
after bad
“I’ve paid so much for car repairs so maybe I should keep this clunker.”
“I probably should just hang up and dial again later, but I've been on hold so
long.” We want a payoff for the sunk costs we have spent on our
investments and tend to keep pursuing a course of action long after we should
abandon it.
The Lure of Simplicity
We latch on to simple solutions as being the answer to our prayers (e.g. “we
need a new marketing message”) - when there may be many contributing factors to
poor performance (wrong people in key roles, wrong strategy, ineffective
execution, poor product quality, lagging innovation, lack of confidence in
pricing, wrong distribution strategy, weak sales force, poor customer service
etc).
Misplaced Concerns
We tend to over-estimate the importance of low-probability events that cause an
emotional reaction and we underestimate the likelihood of high-probability
events that have less of an emotional component. We have a higher fear of
sharks - than fear of drowning. We worry more about airline crashes - and
less about heart disease. We overestimate the importance of copying
competitor’s moves – when it may make better sense to pursue our own course.
Just because a competitor makes a move, does not mean you need to emulate
them. Strategy is not about being “better”, it is about creating a
“meaningfully different” value proposition for your customers.
Have you clarified your Strategic Plan for 2010 and beyond? Contact us
now to help you develop a strategy that will transform your business potential
into extraordinary results!
Stephen Lynch
Chief Operating Officer - Global Operations
RESULTS.com
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