11.512 Schulich Fall Rev_Layout 1 - The Schulich School of ...

In fact, research indicates that external factorsare the cause of failure only 13 per cent of the time. 1In contrast, a staggering 87 per cent of business failuresare the result of decisions taken by management –decisions that could have averted the failure. I wonder:has strategic planning failed us?For more than a half-century, business leadershave engaged in strategic planning. Annual retreatsby senior executives blend socializing and strategicplanning in a predictable mix of SWOT (strengths,weaknesses, opportunities, and threats) analysis, flipcharts, and brainstorming, followed by a list of goals,objectives, and binders of targets and implementationtactics. I am not advocating the elimination of theritual practice of the executive retreat, but we needto understand the shortcomings of conventionalstrategic planning practices.Further, while strategic planning focuses on differentiatingthe firm’s product offering, Calgary’s businesscommunity is somewhat unique because there is a largedominance of price-takers. Energy firm revenues arebased on world prices without significant differentiationof their products and pricings. Strategic planning inthis sector can be very structured with an illusion ofpredictability. As a result, the most strategic firms focusmore on direction and themes than goals and objectives.While Calgary’s business community might haveunique characteristics, all businesses can learn fromothers’ mistakes. Research by the Corporate ExecutiveBoard highlights the four most common reasonsfor failure:this level of persistence is not common in the corporateworld, and more often executives cut funding to newinventions before they are able to bear fruit. Possibly themost dramatic example was Xerox Corporation’s Palo-Altoresearch centre that invented, but never pursued, manyof the computer interface tools we use decades hence.PREMATURE CORE ABANDONMENT.Ironically, the third most common reason forfailure is the exact opposite of the secondreason – firms have a tendency to drop theircore business at the first sign of industrychange. Research indicates that on averageit can take up to seven years for an industry to transform,even in light of clear functional advantages of newproducts. 2 This figure applies to more conventionalproduct offerings and is suspect in today’s technologyfocusedrapidly changing environment.TALENT BENCH SHORTFALL.For any manager, this should be a no-brainer,but sadly many firms still resist successionplanning, which scholars argue is criticalat all levels in the organization. Thereis plenty to say about proper recruiting,growth, and retention, but this is better left foranother article.REASONS FOR STRATEGY FAILUREPREMIUM POSITION CAPTIVITY.The most common failure is when firmsrefuse to accept industry-wide changethat renders their offering as over-pricedand off the mark. Harvard professor ClaytonChristensen coined the term “disruptiveinnovations” to describe changes in business modelsor technologies that shift market demand and createobsolescence. Examples include technological changesthat shifted from micro-computers to personal computersto laptops to tablets, etc. or business model changesthat include Walmart’s extinction of the local generalstore, Southwest Airlines’ reformation of the airlineindustry, and more recently Netflix’s replacement ofthe Blockbuster video store rental model.INNOVATION MANAGEMENT BREAKDOWN.Engineers must take note of this secondmost prevailing cause of failure. ThomasEdison famously said that he did not fail, buthe found 10,000 ways that the electric lightdid not work. James Dyson pushed to thelimits of bankruptcy to test over 5,000 prototypes of hisvacuum system before finding the path to becoming oneof the richest people in the United Kingdom. However,SCHULICH 8 ENGINEER