The Real Reason Why Business Strategy Fails

Companies desperately need to demystify what strategy really is and get back to the basics of doing it well.

Whether tuning into the news or simply scrolling your LinkedIn feed, it’s hard to ignore the constant drumbeat of layoffs, particularly in tech and media. There are a lot of theories as to why so many layoffs are happening right now:

  • Unchecked cognitive bias, specifically projection bias. Leaders believed that a behavior or environment would last indefinitely, and overshot demand. For instance, that customers would continue online shopping at the same rates as during the pandemic, or that “cheap money” in the form of low interest rates would always be available. 
  • The bandwagon effect or social contagion. Leaders are seeing leaders at other organizations laying people off, and assuming that’s the right decision—despite the fact that many of these companies aren’t hurting for cash.
  • A misunderstanding of talent. Leaders may assume that organizations can hire or fire employees at will without impacts on culture or performance, despite extensive research showing this isn’t true—in fact, unnecessary mass layoffs are seriously damaging in the long run, but leaders still reach for this lever.

At the root of these conditions is terrible strategy—either the decisions that led up to these layoffs, or the decisions that are being made right now, depending on what theory (or combination of theories) you subscribe to. Companies desperately need to demystify what strategy really is and get back to the basics of doing it well.

The first step might be to simply stop calling “strategy,” strategy for the time being. As a concept, it’s given too much importance (a vision handed down from an Oracle!) and too little definition (is it a plan? A calendar of deadlines and to-do lists?) Ultimately, “strategy” involves making choices as a group. And in fact, if we replaced “strategy” entirely with the term “group choice making,” we’d probably approach it more effectively. Consider your own organization’s internal strategy and choice-making processes, versus the simple lessons we already know work to make groups better at making choices and decisions:

  1. We’d limit the number of decision makers to avoid confirmation bias. At most organizations, many hands touch and mold a decision (sometimes over and over again) before it is officially made to ensure alignment. Unfortunately, larger groups are prone to confirmation bias which makes them more susceptible to missing changes in the market or in consumer behavior.
  2. We’d seek out diverse perspectives. The group making the decision is often a fairly homogeneous one, with members that were often directly recruited by one another.  Yet  the more complex the task or decision, the more we need multiple perspectives—so we’d want greater diversity in our ranks of decision makers. 
  3. We’d add to rigor to avoid groupthink. Dissent may not actively be suppressed in your organization, but it is often passively frowned upon in the process or otherwise coerced out, and input is typically gathered in large meetings, in full view of one another. To counteract a rush to consensus and herd mentality, we’d designate at least two “devil’s advocates,” and gather input individually at first to avoid the bandwagon effect.
  4. We’d ensure psychological safety to encourage genuine debate. All too often, psychological safety is placed second to group harmony or mission commitment. Instead, we’d actively foster an environment in which folks could share their genuine opinions and concerns, without either toxic positivity or cynicism. 
  5. We’d listen to but interrogate experts’ opinions. An outside consulting firm’s recommendations for strategy are too often adopted without real debate, whether because of a belief in their expertise, or in an effort to displace blame if something goes wrong. While outside opinions can of course be helpful, we know that groups can fall prey to over relying on experts and therefore deliberations must come from the organization itself.
  6. Finally, we’d hold each member of the group accountable for the outcomes of their decisions so that everyone felt an equal responsibility in their participation. Consequences may follow from poor decision-making, but those consequences are rarely paid by those who made the decisions. We’d align “responsible” and “accountable” parties, and do our best to make sure incentives lined up accordingly.

Here’s one last uncomfortable truth: many individuals in your organization do understand strategy—but they’re making choices that put their own (or their team’s) success ahead of the department or organization. And they’re not necessarily doing this out of malicious intent; they’re probably following the examples set by others or responding to poorly designed incentives. 

Organizational Change

NOBL has helped world-famous organizations change collective behavior and business outcomes. Reach out to see how we might be able to help your organization.

In other words: it’s a broader cultural problem to solve, which means you’ll face substantial resistance. If your organization is currently going through a layoff, taking responsibility for the bad strategy and committing to improvement can be a cultural moment to begin to reverse the conditions. If you’re not going through a layoff, you’re in a better position, but you likely still have some bad strategy practices happening, and aren’t immune to their implications. Either way, making changes now will give you a greater advantage in the long run.

Published January 29, 2023

Leave a Reply

Your email address will not be published. Required fields are marked *

NOBL is hiring!

NOBL is seeking experienced changemakers to help our clients achieve meaningful and measurable transformations. Learn more about our opportunities, our culture, and our aspirations.