National Institute of Business Management

Chennai - 020
SECOND SEMESTER EMBA/MBA
Subject : Strategic Management
Question No.1 - How can congruence be achieved? Discuss budgets and rewards.
Answer - The present paper is a part of larger research on a quantitative expression of plan of action
prepared in advanceof the period to which it relates and a means of translating the overall objectives of the
organization intodetailed plans of action. The macro theme requires details of changes in law, economy and
business in differentfields. Towards creating a new area of strategic risk management, its micro details, this
paper takes up the goalsof individuals and groups should coincide with the goals and objectives of the
organisation as a whole which isthe behavioral aspects of budgeting.
KEYWORDS
Tunnel vision, planning, cost accounting, management, efficient working, control system, goals,
goalcongruence, internal factors, external factors, informal factors, formal factors.There are different
models of organizational styles of management exists. Among the possible style of management, the ones
most likely to create problems are the fire fighting and tunnel vision approaches.Fire fighting consists
of reacting to the events and crises when they appear; tunnel vision is a selective perception of what
constitutes the organizations concern. Planning is an effective mechanism to counter boththe fire fighting
and tunnel vision management styles. It allows the organisation to define its relationship withthe
environment and is a method of guiding managers so that their decisions and actions are set to the future
of the organization in a consistent and rational manner and in a way desired by the top management.
Planning hasalso been defined as a process which begins with objectives; defines strategies, policies and
detailed plan toachieve them; which establishes an organization to implement decisions and feedback to
introduce new planning cycle.The above definitions describe planning as the process of collecting
information on objectives and makingdecisions on the way to achieve them. Planning is vital to an
organizations future success. Stanley Thune andRobert House analyzed the planning function in 36 similar
firms in six industries. This has led to the conclusionthat (i) those firms that rely on formal planning
department were more successful than those rely on informal planning, (ii) those firms that rely on a formal
planning department perform more successfully after the systemis instituted than previously. Planning
prepares firm to operate in dynamic world and to adapt to the ensuingchanges in the technology, finance,
resource availability, economic conditions, and so forth. Because of the benefits of planning, it is not
surprising that most firms of all sizes and industries rely on some formal planningsystemCost accounting,
also known as management control systems or control systems, consist of rules and proceduresaimed at
accumulation and communication of relevant cost information for internal decision making. Thesecontrol
systems formalize the objective of the organization and express them operationally as performancecriteria
to be met by the individuals in the organization. Central to the efficient working of the control systemsis goal
congruence, that is, the harmonization of individual and group objectives within the organization and the
Objectives of the organization as a whole. Robert N. Anthony was perhaps the first to stress the importance
of goal congruence.Goal congruence is achieved when individuals in the organization strive or are induced
to strive towards thecompany goals. This assumes, of course, individuals are aware of company goals and
the derivative performance criteria. The essence of companys goals is conveyed by planning process, which
expresses thesegoals in terms of budgets, standards and other formal measures of performance.
Management must tailor the planning activities to encourage goal congruence at various levels of
management. To achieve goal congruencethe following ideas are important
The firm should be viewed as pluralist entity where coalitions of individual seek to express their
ownaspirations within the structure of the firm.

Personnel cannot be viewed as people sharing the same goal, but also as people striving for suchrewards
such as power, security, survival, and autonomy.While profit maximization has long been considered the
single goal of the firm, in reality, corporations pursuerange of goals. For example a reputed firm may
emphasize multiple goals by stressing that organizational performance be measured in the following areas
i.e. (i) profitability, (ii) market position, (iii) productivity, (iv) product leadership, (v) personnel development
(vi) employee attitude, (vii) public responsibility, and (viii) a balance between short-range and long-range
goals.The goals of the firm may also conflict with one another, with individuals and group objectives.
Abargaining process may be necessary to reduce these conflicts in the goal setting process. In fact the budge
t may beconsidered as the key mechanism for stabilization of that process, that is, a bargaining medium
through whichindividuals and groups try to further their own goals.Individuals work in different hierarchies
and handle different responsibilities & may have different goals. Butthey must come together as far as
Companys Goal is concerned, (the action must speak Companys language).This term is used when the
same goals are shared by top managers and their subordinates. This is one of themany criteria used to judge
the performance of an accounting system. The system can achieve its goal moreeffectively and perform
better when organizational goals can be well aligned with the personal and group goalsof subordinates and
superiors. The goals of the company should be the same as the goals of the individual business segments.
Corporate goals can be communicated by budgets, organization charts, and job descriptions.
Significance of Goal Congruence
Ensures frictionless working.
Ensures achievement of organizations goal/strategic objective
Ensures coordination & motivation of all concerned
Ensures consistency in the working of all concerned.
Gives fair chance to its employees to achieve their personal goals.
Enhances the loyalty towards the company.
Satisfies prime requirement of
Management Control System (MCS)Factors those influence the Goal Congruence
Informal Factors
I. External factors
set of attitudes of the society, work ethics of the societyII.
II. Internal factors
(Factors within the organization)
Culture- Common beliefs, shared values, norms of behavior & assumptions implicitlyaccepted and
explicitly built into.
Mgt. Style Informal/Formal The Communication Channels
Perception and Communication e.g. Budget (meaning): A strict profit control plan,Budget:A tentative
guiding profit plan
Formal Factors
Management Control System A Strategy itself
Rules Instructions, manuals and circulars, Physical controls, system safeguards, task controlsystem.
Question No.2 - Explain the growth of E-Business in India.
Answer- Introduction
The explosion in the use of the Internet has paved the way for several path-breaking innovations. One of the
most interesting and exciting aspects of this evolution is the emergence of electronic business (e-business) as
a mainstream and viable alternative to more traditional methods of businesses being conducted today. Ebusiness is defined as the process of using electronic technology to do business. It is the day and age of
electronic business. Also the structure of the Web is rapidly evolving from a loose collection of Web sites into
organized market places. The phenomena of aggregation, portals, large enterprise sites, and business-tobusiness applications are resulting in centralized, virtual places, through which millions of visitors pass
daily.

E-business has become standard operating procedure for the vast majority of companies. Setting up
and running an e-business, especially one that processes a large number of transactions, requires technical,
marketing and advertising expertise. Consumers like to access to products and services on a 24-by-7 basis,
and the easiest way to provide that is to move operations online. The businesses that provide the most
reliable, most functional, most user-friendly and fastest services will be the ones that succeed.
E-commerce is the subset of e-business that focuses specifically on commerce. Commerce is the
exchange of goods and services for other goods and services or for cash payment. E-commerce is all that a
company conducts commerce through electronic technology. Since commerce is clearly a sort of business,
all the keys to success for e-business automatically apply for e-commerce also.
E-commerce redefines the very foundations of competitiveness in terms of information content and
information delivery mechanisms. Flows of information over international networks have created an
electronic market-space of firms that are learning to exploit business opportunities.
A few years ago the only way of buying books is that one has to go to bookstores. Purchasing
clothes meant a trip to the malls. Trading of stocks happened through brokers only. Not anymore! Today
businesses are coming to our doorstep. A number of companies and large warehouses have successfully
managed to put an electronic outlet to traditional businesses.
Current Happenings in the E-business World
Industries are moving all of their operations online, as it becomes clear that the Web, not
constrained by geographic boundaries, is a more efficient vehicle for their services and allows them to work
on a truly global scale. People are currently able to pay their bills, write and cash checks, trade stocks, take
out loans, mortgage their homes and manage their assets online. Money as we know it may cease to exist,
replaced by more convenient technologies such as smart cards and digital cash. Intelligent programs will
take care of the financial and logistical aspects of the interactions between both the individuals and the
corporations who populate the Internet. All that a person needs to do shopping is a connection, a computer,
and a digital form of payment.
Traditional "brick and mortar" stores are already being replaced by a multitude of electronic storefronts populating the Web. No single brick-and-mortar store can offer 50,000 products, but an online store
has the capability to offer a limitless number of them. There are services for finding the best deal on items
for consumers. An increasing amount of consumer information, such as consumers testimonies, product
overviews, comparison charts, is being made available, leading to better deals for customers.
In addition to business-to-consumer operations such as electronic stores, business-tobusiness(B2B) marketplaces and services are also taking their place on the Internet. A business which
orders products from a supplier online not only completes the transaction with greater speed and
convenience, but also can keep track of the shipment constantly. B2B e-commerce Web sites are also
channels that permit operation between different business as well as the outsourcing services that are and
will continue to be crucial to the Internet economy.
The transition from brick-and-mortar businesses to "clicks" business is happening in all sectors of
the economy. It is now possible for a business to work without an office, because the employees can conduct
all communication via phone, voice mail, fax, e-mail and the emerging capabilities of the Internet. There are
already Internet services that integrate phone, fax, voice and e-mail, and in the future, new technologies will
further facilitate the virtual office.
Many e-businesses can personalize the user's experience, tailoring web pages to their individual
preferences, searching using artificial intelligence techniques and letting them bypass irrelevant content.
Personalization is making it easier and more pleasant for many people to surf the Internet and find what
what they want.
E-business occurs all time as a company uses electronic technology for conducting its business.
Thus an e-business can be anything from a sales pitch on a web site to an electronic exchange of data. Many
companies have chosen to embrace e-business as they have realized that it is a way to improve efficiency,
offer new and innovative services, and increase the quality of their business. The important point to be taken
into account here is that e-business carries a fundamentally different way of doing business, instead of being
just a new tool to fit into old methods. E-business has a steep learning curve and companies venturing into

e-business have to undergo the important exercise of re-evaluating their business first. A proper and
successful strategy must be chalked out before embarking into this highly technology-oriented task.
E-business Models
The emergence of e-commerce and its related technologies had lead to the creation of many
different robust applications that are typically grouped into several categories of e-commerce.
Business to Consumer (B2C) are applications that provide an interface from businesses directly to their
consumers. The most common example of a B2C application is a retail web site featuring the business's
products or services that can be directly purchased by the consumer. The importance of B2C varies
dramatically from company to company. For some companies, reaching consumers has been the critical
aspect of their business. For some companies that run a chain of retail stores, B2C should be one of the
most important pieces of their Internet strategy. Even some companies that already have third parties to
distribute, market, and sell their products are not much concerned about B2C. Many companies that never
have sold directly to consumers, having realized it is clearly much more cost efficient to open a B2C site
than to open a physical store, have begun to lean towards B2C. In this case, it becomes necessary for them
to address a whole lot of small and big issues. But still B2C applications remains on top of the applications
of the Internet as this is directed related to the masses.
Business to Business (B2B) - Forging new relationships between businesses is becoming critical for
businesses to survive and blossom in this increasingly fast paced world. B2B applications provide new
opportunities for businesses to leverage emerging technologies to build their businesses. Examples of B2B
applications include facilitating transactions for goods/services between companies, selling goods/services
on the Internet to businesses, and supply chain integration. Another example is online procurement of goods
from one company to another. Legacy integration is a huge issue in B2B applications. If existing
applications such as EDI or EFT are extended to help the B2B process, then the existing legacy applications
can be a big help in moving forward. On the other hand, if two companies want to trade data, but have
dramatically different legacy systems, legacy integration can be a challenge to overcome. There are other
issues such as security, speed, and flexibility, in B2B applications.
Business to Business to Consumer (B2B2C) is one of the emerging models of e-commerce. B2B2C is
basically defined as using B2B to help support and rejuvenate companies attempting B2C. This is due to the
fact that B2B has been an overwhelming financial success and B2C has not performed upto the
expectations. This model is poised to do well as it capitalizes the success of B2B and the potential demand
of B2C. B2B provides a way for B2C companies to reduce costs and improve their B2C services. An
example of B2B2C is developing products to help B2C companies increase profit by integrating inventory
from the manufacturer to the distributor. An application that links one online catalog to another would be
considered a B2B2C application as it capitalizes on both B2B and B2C.
Consumer to Consumer (C2C) - C2C is an interesting relatively new piece of the e-commerce world. C2C
applications involve consumers conducting commerce directly with other consumers. This obviously means
that the company facilitating the transaction must find some non-traditional revenge stream. This could be a
small cut of the transaction, a service fee, advertising, or some combination of these. E-bay is an excellent
example of a C2C application that is extremely popular with consumers.
Customer to Business to Consumer (C2B2C) involves consumers conducting transactions with other
consumers using a business as an intermediary. www.autotrader.com is the best example for this sort of
application. This site facilitates the transactions of selling used cars between consumers, but also contains
an inventory of used cars to sell to the consumer.
Apart from above categorized e-commerce applications, there are several specific models of
businesses operating on the Web. Here comes a brief of each model.
Auction Model - The Web offers many different kinds of auction sites.Auction sites act as forums through
which Internet users can log-on and assume the role of either bidder or seller. As a seller, one can post an
item to sell, the minimum price he requires to sell his item and a deadline to close the auction. As a bidder,
one can search the site for availability of the item he is seeking, view the current bidding activity and place
a bid. Also there are sites designed to search existing auction sites in order to pinpoint the lowest prices on

an available item. Although auction sites usually require a commission on sales, these sites are only a forum
for online buying and selling. They get the commission from both parties once the deal is over.
Portal Model - Portal sites give visitors the chance to find almost everything they are looking for in one
place. They often offer news, sports, and weather, as well as the ability to search the Web. Portals are
subdivided into two kinds: horizontal portals and vertical portals. Horizontal portals aggregate information
on a broad range of topics. Vertical portals are more specific, offering a great deal of information
pertaining to a single area of interest. Online shopping is a popular addition to the major portals. Portals
linking consumers to online merchants, online shopping malls and auction sites provide several advantages.
Dynamic Pricing Models - The Web has changed the way business is done and the way products are priced.
There are companies which enable customers to name their prices for travel, homes, automobiles and
consumer goods. Buying in bulk has always driven prices down and there are now Web sites that allow one
to lower the price by joining with other buyers to purchase products in large quantities to get price
reduction. There are a number of variety of models here. They are Name-Your-Price Model, Comparison
pricing model, Demand-sensitive pricing model, and Bartering model. E-business allows companies to
follow a variety of ways to keep prices down on the Internet, such as rebates and offering free products and
services.
Online Trading and Lending Models - Another fast-growing area of e-commerce is online securities
trading. Many brokerage houses have established a presence on the Web. Trading sites allow one to
research securities, buy, and sell and manage all of his investments from his desktop. Online trading often
costs less than conventional brokerage.
The Web offers a quite number of exciting services including getting a loan online, recruitment
through the Web, online News services, online travel services, online entertainment, online automotive sites,
energy online, selling brain-power, online art dealers, e-learning and e-banking.
Question No.3- Does strategic management work? Examine.
Answer - The strategic management process is more than just a set of rules to follow. It is a philosophical
approach to business. Upper management must think strategically first, then apply that thought to a process.
The strategic management process is best implemented when everyone within the business understands the
strategy. The five stages of the process are goal-setting, analysis, strategy formation, strategy
implementation and strategy monitoring.
Goal-Setting
The purpose of goal-setting is to clarify the vision for your business. This stage consists of identifying three
key facets: First, define both short- and long-term objectives. Second, identify the process of how to
accomplish your objective. Finally, customize the process for your staff, give each person a task with which
he can succeed. Keep in mind during this process your goals to be detailed, realistic and match the values of
your vision. Typically, the final step in this stage is to write a mission statement that succinctly
communicates your goals to both your shareholders and your staff.
Analysis
Analysis is a key stage because the information gained in this stage will shape the next two stages. In this
stage, gather as much information and data relevant to accomplishing your vision. The focus of the analysis
should be on understanding the needs of the business as a sustainable entity, its strategic direction and
identifying initiatives that will help your business grow. Examine any external or internal issues that can
affect your goals and objectives. Make sure to identify both the strengths and weaknesses of your
organization as well as any threats and opportunities that may arise along the path.
Strategy Formulation

The first step in forming a strategy is to review the information gleaned from completing the analysis.
Determine what resources the business currently has that can help reach the defined goals and objectives.
Identify any areas of which the business must seek external resources. The issues facing the company should
be prioritized by their importance to your success. Once prioritized, begin formulating the strategy. Because
business and economic situations are fluid, it is critical in this stage to develop alternative approaches that
target each step of the plan.
Strategy Implementation
Successful strategy implementation is critical to the success of the business venture. This is the action stage
of the strategic management process. If the overall strategy does not work with the business' current
structure, a new structure should be installed at the beginning of this stage. Everyone within the
organization must be made clear of their responsibilities and duties, and how that fits in with the overall
goal. Additionally, any resources or funding for the venture must be secured at this point. Once the funding
is in place and the employees are ready, execute the plan.
Evaluation and Control
Strategy evaluation and control actions include performance measurements, consistent review of internal
and external issues and making corrective actions when necessary. Any successful evaluation of the strategy
begins with defining the parameters to be measured. These parameters should mirror the goals set in Stage
1. Determine your progress by measuring the actual results versus the plan. Monitoring internal and
external issues will also enable you to react to any substantial change in your business environment. If you
determine that the strategy is not moving the company toward its goal, take corrective actions. If those
actions are not successful, then repeat the strategic management process. Because internal and external
issues are constantly evolving, any data gained in this stage should be retained to help with any future
strategies.

Question No. 4- Write an essay on Why Strategies fail?

Answer - The workshop combined audience interaction, experiential learning, live simulations,
performance art, and ah-ha surprises. This essay presents conceptual highlights from the workshop even if,
alas, it falls short on interaction, experiences, simulation, performance, and surprise. As you read please
imagine a lively, dynamic, engaging session, thanks to a great group of participants.
At first glance Why Strategies Fail is an odd subject. After all, dont we really want to know what makes
strategies succeed?
One thing we strategists must do to succeed is to not fail. And theres sad evidence that we arent necessarily
good at not-failing.
First, dont fail
What do these companies have in common?
Blockbuster Video. Borders. Chrysler. Circuit City. Delta Air Lines. Enron. General Growth Properties.
General Motors. Hollywood Video. Kmart. Lehman Brothers. Six Flags. Texaco. Texas Rangers. Trans
World Airlines. United Airlines. Washington Mutual. Worldcom.
What they have in common is that they all went bankrupt.
Some of them have emerged from bankruptcy. Still, its safe to say that none of them wanted to enter
bankruptcy in the first place.
Its not immediately clear how they came to such unhappy ends.
o
They didnt enter bankruptcy only when times were bad. Some did in good times.
o
They didnt enter bankruptcy because their industries were imploding. They had competitors who
survived and even prospered.

They didnt enter bankruptcy overnight. Some took decades to fail, meaning that generations of wellintentioned strategists didnt prevent the fall.
Bankruptcy is only one form of failure. We also say a strategy failed when it misses its performance targets,
loses ground to competitors, or costs its author his or her job.
Strategies fail when
When strategists choose bad strategies, strategies fail. That sounds obvious until we remember that no
strategist purposely chooses a bad strategy. Strategists are smart, experienced, industry-savvy, data-rich,
and highly motivated to succeed. They want to choose smart strategies. Yet smart strategists can and do
choose bad strategies.
If you doubt that smart strategists choose bad strategies, look again at the list of companies above. Do you
believe they employed, promoted, and trusted incompetent strategists? Do you also believe their senior
management approved bad strategies due to incompetence of their own?
Because smart strategists choose bad strategies, were unlikely to prevent bad strategies merely by shuffling
people around. Thats an expensive, haphazard way to solve the problem of strategies that fail.
Instead, lets address why smart strategists can mistakenly believe that a bad strategy is a good strategy.
Thats what we did in the workshop.
o

Seven habits of highly ineffective strategizing

I didnt call this section the seven habits because there are more than seven. And even though you may
read them in a few minutes, take a few seconds to consider why we spent a few hours on them in the
workshop. Its because its more effective, not to mention more fun, to learn through experience than through
lectures. In the workshop we discovered each of these seven habits experientially.
Using wrong paradigms
We have strategy problems. How should we position our product? How should we defend against a new
entrant? How should we price as we enter or exit a recession?
We say that if you have a hammer, you see problems as nails. Theres also the reverse to consider: if you
have a nail, you need a hammer.
The tools we choose to solve strategy problems are often accounting-based spreadsheets, trend lines,
anecdotes, and advice from confident-sounding people. Those tools rely on paradigms that may not fit
strategy problems. For example, a trend line assumes that conditions from the past will persist into the
future. If the past will persist, we dont have a very hard problem; if it wont, the trend line itself isnt
reliable.
We need to use thinking and tools based on relevant paradigms. That means if we have a strategy nail, we
need a strategy hammer.
Seeking pseudo-precision
When a strategy fails, we reasonably turn attention to the analysis and forecasts that led us to adopt the
strategy. We figure that if we can make the analysis and forecasts more precise, well be more likely to
succeed in the future.
That may be true if lack of precision is the problem. In my experience, though, lack of precision is rarely, if
ever, the problem.
A large telecommunications company faced a new competitive threat. Their strategists had been unable to
choose whether to respond with Strategy A or Strategy B. Think of how they could have resolved their
impasse: take a vote, have the boss rule, wait (for what?) and see, kick the decision up to top management,
get a consultant to make a recommendation. Note that those options are merely means to make a choice.
They decided instead to work it through in a business war game.
In their business war game we had them role-play their company and the new competitor, and we used a
strategy simulator to estimate the outcomes. The choice between Strategy A and Strategy B came down to
whether strategists would prefer to lose 20 points of market share or 40. To make a good decision, who
cares if its 20 versus 40, or 19 versus 37, or 20.311 versus 38.726?

Relying on anecdotes and stories

We humans love anecdotes and stories. We glow as we imagine ourselves the hero, which we call aspiration
and inspiration. We shudder as we imagine ourselves the victim or villain, which we call fear or lessons
learned.
Anecdotes and stories prove that something is possible even if, swept up in a good tale, we forget that
possible doesnt mean probable. But anecdotes and stories hardly provide solid ground to make complex
decisions.
A question I find helpful is this: It works in practice, but does it work in theory? No, I didnt scramble
practice and theory when I wrote that.
Something may appear to work in practice. We infer that through a process that goes like this: I did X, then
Y happened, and I like Y, so X works. But we all know that X-preceded-Y doesnt mean X-caused-Y,
especially in a field as turbulent, complex, and interconnected as competitive strategy.
Asking does it work in theory injects intellectual discipline where we otherwise would have only
assertion, inflation, persuasion, and frustration. It asks whether we can draw plausible cause-and-effect
links from X to Y before we risk our Y on that X.
Assuming our strategy will work
If you ask strategists will your competitors do what you want them to do?, of course theyll answer
maybe, but probably not. Yet tools commonly used in strategy development implicitly assume that your
competitors will do what you want. Whens the last time you saw a spreadsheet take competitors reactions
into account as it forecasted your business future profits or market share? And on the off chance that it did,
how strong, sustained, or clever was the competitive response that was fed in?
In the workshop we ran a miniature business war game based on the automobile industry. Teams of
workshop participants role-played various car-makers as they allocated production and forecasted results in
three consumer segments.
What we saw mirrored what Ive seen in hundreds of business war games Ive conducted for companies and
at conferences: teams made rational decisions that rammed head-on into competing teams rational
decisions. Teams raced to expand in the segments they considered desirable. Teams assumed an orderly exit
from shrinking segments. Every team expected to gain market share somewhere. Not a single team expected
to lose market share anywhere. Net result: overproduction in every segment, and performance below
expectations.
Of course strategists want to grow; people dont like strategies that will shrink their businesses. And in a
business war game, as in real life, some businesses will grow.
But hopes for at least some will be dashed, in real life as in war games. Does that reflect not-good-enough
strategies or too-optimistic hopes? A full answer goes beyond this space and perhaps your patience. Lets
just say that we may inadvertently cause not-good-enough strategies, too-optimistic hopes, or both, when
our strategy-development tools implicitly assume our strategy will work.
Believing we can make it happen
The phrase make it happen stirs the accountability and glory centers of our brains. It feels triumphant to
proclaim that we will make it happen. It feels magisterial to demand that you must make it happen.
The thing is, its only not up to us/you whether it happens. Others are involved, such as competitors, whose
brains are similarly stirred. Then there are customers, suppliers, distributors, regulators, shareholders, and
financiers, not to mention constraints from budgets and technology.
When it happens, its not necessarily because we made it. And even if we made it happen, we didnt
necessarily do it in a way we prefer. Perhaps we made our profits happen by cutting costs when expected
sales didnt materialize.
We train telescopes on our goals and microscopes on our budgets, and what we need is a wide-angle lens to
scan our scenarios. After all, if we fail to make it happen because of the things that swoop out of a
metaphorical left field, perhaps we ought to pay more attention to left field.

Deciding while being human

Imagine an unfair coin. A fair coin, when flipped, comes up heads 50% of the time and tails 50% of the time.
The unfair coin youre imagining comes up heads 60% of the time and tails 40%.
Say you repeatedly flip your unfair coin with humans and ask them to predict the result of the next flip.
Humans observe previous outcomes closely. They perceive patterns and construct elaborate schemes and
rules. They regard correct predictions as vindication and incorrect predictions as an imperative to refine
their systems. They believe that with practice they can do better.
Say you flip your unfair coin with rats (or the rat equivalent of such a coin) and reward them with food for
each correct prediction.
The rats out-perform the humans.
The rats learn that guessing the rat-equivalent of heads every time will maximize their food. They get fed
60% of the time. The humans, with their big brains and complicated systems, get it right less than 60% of
the time.
Im not against big brains. Im not against complicated systems. Im not for rats and Im not against
humans.
What I am against is forgetting that were human, and therefore subject to human biases and foibles, when
we make decisions. Overconfidence; groupthink; innumeracy; confirmation bias (believing only the data
with which we agree); much more. We can fight those biases and foibles if we learn and try. The point is, we
have to learn and try.
Not figuring out what its about
In business schools, at conferences, and in news reports, everything arrives labeled. This is a marketing
case, thats a sales problem, this is competition, thats product development. We reach for mindsets and tools
with matching labels and get to work.
Challenges in real life dont come labeled. (Notice, by the way, that challenge is itself a label.) Were
predisposed to think of finance, prices, and trend lines if we have spreadsheets just as we think of nails if we
have hammers, but that says as much about our thinking as it does about the challenge at hand.
We included an unlabeled challenge in the Why Strategies Fail workshop. Im not going to describe it
here, partly because it would lose too much in the translation and partly because you may experience it
someday with me or someone else and I dont want to spoil it for you. The point of the unlabeled exercise is
that its easy for us to fail if we dont pay attention and figure out what its about. Doing so requires taking a
few minutes to think, to question assumptions, and to be willing to be wrong.
The bottom line
We strategists often think in terms of strategy fundamentals: understanding customers, anticipating
competitors, seeking profitable markets, achieving market share, controlling costs, and so on. When we
build a strategy we carefully deploy the fundamentals. When a strategy fails we investigate what went wrong
with the fundamentals.
I suggest that there is also such a thing as strategist fundamentals. Strategist fundamentals drive and reflect
how we think. If you review the seven habits of highly ineffective strategizing weve covered here, youll see
they are about those thinking fundamentals.
Weve come full circle. We began with why strategies fail and now we end with how strategies succeed.
Good strategies come from good decisions. Good decisions come from good decision-making. Good
decision-making comes from good strategist fundamentals; that is, from good thinking. And thats the bottom
line.