Poor Strategy Is Costly

Across industries, governments and institutional settings, there is widespread error confusing tactics with strategy. Strategy is the relationship between means and objectives. It answers three questions:

1. Where do we go?
2. How do we get there?
3. How much will it cost?

It is an inherently creative process, shaped as a vision interacts with its operating environment. Strategy design is roughly similar to Michelangelo’s approach to sculpture: he understood his task as finding the form hidden in the block of marble.

Poor strategy is expensive and bad strategy can be lethal. What General Motors (NYSE: GM), Gannett (NYSE: GCI), Interpublic Group (NYSE: IPG), Citigroup (NYSE: C), and Pfizer (NYSE: PFE) are now experiencing is the heavy price to pay in mistaking components of strategy with strategy itself, or misreading the strategic effect of components.

Take drug companies, as an example. There is no need to argue that the global pharmaceutical industry is going through a process of profound transformation and intensely negative reaction to its commercial model. Part of the reason for this has been the complete absence of strategic thinking around the deployment of DTC advertising – while claims can be made at a tactical level for the value of this marketing component, the strategic effect of spending nearly $4 billion a year on consumer advertising of prescription drugs has been to open the industry to scrutiny and sanction. Nearly every major drug company active in the United States is facing multiple federal and state investigations into their business practices. Regulators from the European Union just completed a second round of raids on pharmaceutical companies, part of the biggest inquiry ever taken by European investigators. Tactical success does not necessarily yield successful strategic performance.

Technology is not strategy. The ever-expanding universe of specialized technology applications can make anything seem possible, but strategy is not forged from technological capability alone. When the same communications and knowledge-acquisition technologies are accessible to everyone, and everyone uses the same operational methods to deploy technology in the same way, competitive convergence happens. Commoditized performance sets in because everyone is emulating each other’s methods.

Nor can strategic understanding be keyed to a specific technology application. There is an enduring human dimension to strategy, with policy and public relations components, which practically guarantees that ‘strategy by analysis’ will miss the mark more often than not. Technology is important, but proliferating technological components simply provide more data feeds to integrate. Human limitations, informational uncertainties, and nonlinearity are built-in structural features of the environment, not pesky difficulties better technology can eliminate.

Cybervision is not a new guiding light for strategy. The digital overlay that cyberspace provides should be understood as unique geography that only adds another dimension to the strategic landscape – it is a piece of strategy, not a stand-alone strategic idea. It is worth remembering that no media environment has been retired or made obsolete because of the Internet. Layers of complexity are being added, but none are being deleted. Fragmentation is in fact getting worse, not better.

You can tell that a system is at the edge of chaos if it shows waves of change on all scales. Heaving disorder is transforming whole nations and nearly all industries – everything is linked in complex systems of behavior. But at a deeper level, culture itself is journeying through a new time. There is great pressure to evolve into something different. The central challenge is discovering a new grammar for strategy in an era radically different that what has ever been seen before. Said another way, better performance will only come from using a new language to describe the nature of this new era, and to shape whole new kinds of strategic moves.

Comments

[redbaron:]

Very well conceived and presented, and a super concept. (Now if we could only get corporate leaders to buy-in to this concept.)

Your examples are spot-on, and especially so with the drug companies. The money they have spent on advertising has been largely wasted, and could have been much better spent on research. While they waste funds on this promotional practice, many much needed new drugs could be found and developed with the same funds.

No doubt this current economic down-turn will prompt some corporate soul-searching and changes in 'strategy', but lets all hope that the CEO's who eventually emerge will approach the new corporate era with a new spirit of 'strategy'.

Many thanks for presenting this concept, John Singer.

2008 Dec 03 07:18 AM

[CHASAM:]

John:
Your article sounds more like an exercise in the English language than anything substantive. Is the redbaron's astute observation that "money they have spent on advertising has been largely wasted" substantiated in fact or just his sage opinion?

2008 Dec 03 12:54 PM

[David in En...:]

Wow, that sounds really intelligent.
I am not sure that DCT can be the key however as it only really exists in America and Pharma's problems are global.
High development costs resulting from increasing regulatory pressure have put pressure on margins.
High prices have encouraged buyers to band together and exploit generics which has also put pressure on margins.
The fundamental problem however is that many Pharma companies have worked out the old small molecule seam and their transition to the new one has not yet paid off.

2008 Dec 03 01:33 PM

[sloane:]

I've posted comments on here before linking back to posts on the Marketing Doctor's blog ( blog.marketingdoctor.t... ). He blogs from a branding perspective--a really simple concept, but one that is often lost sight of and which fits with the ideas in this article. The example of the drug companies, for instance--in marketing their products, they side-step the question of what their brand/s is/are supposed to be--what I think Dr. Tantillo refers to as their 'core essentials.'

Dr. Tantillo did a post on Citigroup last week, when its stock was down at $3.77. He argues that Citigroup strayed from its roots--lost sight of its brand:

"We don’t really call them conglomerates anymore, and we talked about “synergies,” but the basic idea was the same: create massive companies with hundreds of thousands of employees, which would supposedly save bottom-line costs and create one-stop shopping for consumers and companies."

"Leading with marketing rather than deal finance would have shown that the basic natures of a bank and an insurance company are very different, and combining them would only dilute both."
Citigroup post: blog.marketingdoctor.t...

2008 Dec 04 02:46 PM