CHAPTER 15
Which Strategy “Comfort Traps” Are You Falling Into?
by Roger L. Martin
Faced with an unpredictable future, strategy makers often fall into three traps:
- Strategic planning: They create a long list of to-dos without having a strategy to carry out.
- Cost-based thinking: They try to model revenue (which is hard to nail down) the same way they model costs (which are much easier to predict).
- Self-referential frameworks: They focus on the company’s existing strengths and its ability to quickly copy rivals’ moves instead of finding a new source of competitive advantage.
Though understandable, these avoidance behaviors are dangerous. If creating strategy feels comfortable, chances are you’re not really doing it.
Answer the following questions to find out which traps (if any) you’ve fallen into and how to get out of them. “No” responses show that you’re on the right track. But if you find yourself answering “yes” to any of these questions, you may have a problem. Use the tips below to remedy the situation.
Comfort Trap 1: Strategic Planning
1. Is your strategic plan a long document (50-plus pages) that lists many functional, product, and geographic initiatives?
Problem: A long planning document may feel rigorous, but the longer it is, the more it will distract you from the harder strategic work of finding ways to acquire and retain customers. Listing a bunch of things that the company plans to do is not the same as creating a strategy.
Remedy: Set the plan aside and ask yourself, “Of all the places we could ‘play’ in the marketplace, where will we play? And how will we beat competitors there?” One page should be sufficient, and five pages the absolute maximum. Initiatives are an important component of a good strategy, but they must be clearly linked to “where to play” and “how to win” choices. Make those choices first and then work out a plan that supports them. (To read more about where to play and how to win, flip back to chapter 9.)
2. Is it difficult to identify any explicit choices that show what the company will not do?
Problem: If you haven’t specified what the company will not do, you haven’t effectively specified what it will, which means you don’t have a strategy.
Remedy: Identify a number of places you won’t play. Once you’ve defined enough of that territory, you’ll be able to describe where you will play with greater precision.
3. Does the plan spend more time describing what will happen in the first one to two years than it spends on years five to 10?
Problem: What you have is really just a budget expressed in prose, not a strategy.
Remedy: Pick five years as the focus of your strategy. Where does the company want to play—and how does it want to win—five years from now? After you’ve determined that, make the next four years the steps you need to take to achieve your five-year target.
Comfort Trap 2: Cost-Based Thinking
4. Does your strategic plan review costs in more detail than revenue?
Problem: You are spending more time on the easier thing to do.
Remedy: Spend two to three times as many person-hours modeling revenue as modeling costs. Anybody can model costs. It takes real effort and skill to model revenue, because it’s controlled by customers, not the company. Revenue modeling necessitates a deep understanding of customer needs.
5. Is it difficult to see any link between revenue predictions and the value proposition?
Problem: If the link isn’t obvious, then the revenue predictions aren’t worth the paper they’re printed on. Most revenue projections are just extrapolations from past revenue, even though competition is notoriously unstable.
Remedy: Look to the future, not the past. Base your projections on how well the value proposition suits customers where the company has chosen to play.
6. Do you treat the predictability of revenue as equivalent to the predictability of costs and model them in a similar fashion?
Problem: Because revenue is determined by customer behavior, it’s much harder and messier to predict than costs, which are largely under the company’s control. If you model them the same way, you’ll end up with grossly inaccurate revenue projections.
Remedy: To model revenue, start by predicting customers’ choices rather than deciding what the company wants to do. When creating strategies and budgets, assume a greater range of error for revenue than for costs. Whereas costs might have an error range of plus or minus 5%, for example, a realistic error range for revenue might be plus or minus 20%.
Comfort Trap 3: Self-Referential Frameworks
7. Does the strategic plan avoid making concrete predictions about the future of competition in your industry?
Problem: You may think you’re applying the concept of “emergent strategy” by avoiding commitment to a predicted future. But to have a strategy of any kind, a company must develop a model of how it thinks competition will look five to 10 years down the road. Without that model, the company can’t make strategic “where to play” and “how to win” choices.
Remedy: Make a prediction about the future even if it’s likely to be only partially accurate. Your vision of the future should inform the strategic bets you’re placing now.
8. Does the strategic plan recommend “fast following” market innovators?
Problem: Fast following is not strategy but the abdication of strategy. The companies least likely to be successful at it are those that make it their goal. They don’t know what to follow fast and when to start following.
Remedy: Don’t fast follow. Choose where to play and how to win; then watch what happens, learn, and adjust your choices accordingly.
9. Does the strategic plan proudly affirm existing capabilities that are difficult to link to particular customer needs?
Problem: If a company luxuriates in its existing capabilities, it will reinforce an internal, producer-focused mentality. It will be hard-pressed to become or stay customer-focused.
Remedy: Specify which capabilities must be built or maintained to produce the winning value proposition for the targeted set of customers. Capabilities matter only to the extent that they help your company meet customers’ needs better than rivals do where you’ve decided to play.
As you pursue and refine your strategy, continue to ask hard questions. Also, ask someone else who knows your organization well to take the assessment. You don’t want to fool yourself into thinking that your strategy is flawless when it might not be. “No” responses show that you’re on the right track.
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Roger L. Martin is professor emeritus and former dean of the Rotman School of Management at the University of Toronto. He is a coauthor of Creating Great Choices: A Leader’s Guide to Integrative Thinking (Harvard Business Review Press, 2017).
Adapted from content (assessment) posted on hbr.org, May 2014, https://hbr.org/web/assessment/2014/05/which-strategy-comfort-traps-are-you-falling-into.