The Worst Error in Strategy
#theworst
It’s easy to say, ‘I knew it.’ after an event occurred.
In July 2020, I went on a trip to Port Lincoln here in South Australia. This was a replacement trip to our original travel destination on the east coast of Australia, which was canceled due to COVID-19. Going to Port Lincoln now we still felt grateful to be able to go during these times. Especially compared to the situation in Europe.
On that trip, we discovered a fascinating beach with super fine sand dunes that feel super smooth when walking barefoot on it and prime beach access. Some people were taking advantage of this fantastic piece of land with their 4x4 trucks. They changed out that distant gravel road with the sand dunes to access the beachfront without getting sandy shoes in the process.
Beautiful beaches were waiting in Lincoln National Park (just behind the rocks in this picture).
(Source: Simon Beuse, 2020)
Trapped in wrong assumptions.
My travel partner also wanted to get onto the beach with the car and skip the part with the sandy shoes to access the water.
She said: ‘Look, Simon. I know you like playing it safe. Yes, we could get stuck in the sand – but look at all the other people out there. They all have all-wheel drive. Just as we do, and they don’t get stuck! Look at that guy back there!’.
She pointed at a truck that had just climbed a massive dune in the distance of the beach.
I reviewed our rental insurance contract in my head (including the term ‘…not insured on unsealed roads…’) and was hesitant. It looked like a lot of fun, and some people were out here today and enjoyed themselves. However, I thought to myself: ‘Simon. You are only here once in your life (most probably). Have some fun and just stop worrying.’
So we went.
And got stuck.
(Source: Simon Beuse, 2020)
We haven’t realized that despite us choosing an off-road-type vehicle at the rental counter, the assumption of all-wheel-drive was wrong. The model we took out did not have this feature. Realizing in this situation that we rented more of an ‘urban-type’ SUV was a little shock. Our rental did not have the required clearance under the car instead of some other models such as the Jeeps we saw drifting around in the sand.
Now, what do we do?
We had no experience ever digging out a car. If you have ever undertaken an off-road trip, you might say this isn’t even that bad. I compared our experience with others on the internet. And wow, there were some terrible ones out there but still. We didn’t know how to deal with it. Especially without any equipment and not even a log of wood lying around to utilize.
But we had to try.
There was no phone signal whatsoever for the past half hour driving to this remote location. And even with a stable connection, we would have to bear a rescue cost of someone coming all the way out here. With dawn approaching fast and water slowly creeping in closer to our stuck Hyundai (we ended up only a few meters near the shore before getting stuck) I got a little nervous, to say the least.
Because of the approaching night, many people had left the dunes already, so it was hard to find a helping hand. But we figured that asking others for help, in this case, would be the only way out (since we couldn’t watch that YouTube video explaining how to properly do it). We had already tried several techniques just to discover that those efforts are driving us deeper and deeper into the sand of this beautiful beach.
Without seeing anyone around, we put on the hazard lights. Then we honked in the classic S-O-S style fashion only to be accompanied by our cell phone flashlight. We pointed it in the direction of the rest of the beach, hoping for someone to have mercy and help us out. I so wished there was someone left.
Luckily, shortly after our overdramatically created scene, two young adults came to our rescue. They explained how this happens to them more than three times a day when visiting this beach with its fine sand. And how they have some tools and pulling power, they can use and help us with.
To this day we were so grateful to have not only received help in this situation (I was already calculating the months and years of debt I would have to pay off due to the burden of sinking a new rental car near the shore) but also to be able to meet new and fun people.
The Worst Error You Can Make in Strategy.
Using this story as an explanation, I want to emphasize what Prof. Michael M. Porter has pointed out in a conference I joined last year (World Of Business Ideas 2020) (check out my blog article about it here). It also goes in hand as well as Stoitzev says:
‘The worst error companies make is competing on the same dimensions.’
Not only did we underestimate the situation (one of our professors in Uni always said if you assume you ‘…make an a** out of me’) and implications of entering a beach with the properties of very fine, light sand but we also somewhat wanted to ‘compete’ with the other Jeeps we saw going up and down the dunes in style. The beach could be therefore seen as the market to draw a connection with this example. We wanted to experience the beach in the same way water rolling close to the parked car while sitting in it and the fun that comes with drifting around in the sand.
This competition on the same dimensions (off-road capabilities such as clearance under the car) got us into trouble. We could have gotten a better car that is more suited. However, looking into the future there might be another beach with even higher dunes that even the Jeeps would not be able to conquer. We might see dune buggies that next time and then assume that (let’s say we got a Jeep) would be able to do that as well. It would (and often does for companies) end in competition with shrinking margins (which we could reference possibly as joy?).
What do you do then?
Instead of entering the competition, which is essentially ‘just’ a ‘more efficient way of organizing the production of goods and services’ (Surblytė 2015, p. 5) think about how you can deliver a unique value (Stoitzev n.d.). Often, this means looking for ways how to innovate (World Of Business Ideas 2020) or even change the way a certain industry works (the example of Spotify is always a good one here) (Porter & Rudden 1982). Don’t compete to be the best, compete to be unique (Stoitzev n.d.).
One Company Who Does It Well.
Now valued as a $1 trillion company, Google has embraced innovation for years. They even went as far as saying that 20% of the time spent at work Google employees are allowed to work on their own projects. While many failed (see ‘Killed By Google’), some survived (which many Google services derived from to become major products such as Google Mail). Described by Krippendorff 2012, p. 5 as an outlier at the core of Google sits the thinking to always create something new Krippendorff (2012, p. 5). Krippendorff (2012, p. 5) calls these types of companies ‘Outthinkers’ because they are not using pure muscle power (e.g. efficiency improvements) to gain an advantage over the competition but through the creation of new products, services, or more (‘unique value proposition’).
By now, Google has become so big that the enormous networking effects (that means value derived from using many services together) (Surblytė 2015, p. 62) has gained the attention of the US Federal Trade Commission (FTC) (Surblytė 2015, p. 55). Among other allegations, Google was said to favor its own services among others (e.g. listing Google Mail more prominent in a search than let’s say Yahoo Mail if that is still a thing) (Surblytė 2015, p. 55). While this case ultimately came to closure without fines in the US (Department of Justice 2011), Google in the past had to pay fines due to its presence and power in the field of internet research (Surblytė 2015, p. 53).
Google is just one example that shows how constant innovation is at the core of creating unique, consistent, and lasting value for customers. And there are many other examples, even in industries, many have not anticipated (such as the company Caterpillar (Porter & Rudden 1982)). In fact, any industry (especially the comparatively low-automated construction industry as we explored in a Hackathon in Sydney in 2019 (see my event impressions here) is of tremendous potential. Companies need to stop chasing the ‘easy path’ by fixating on their margin increase for one particular service or good and its dimensions.
During the ‘Oxford Global Hackathon 2019’ in Sydney, our team discovered the very low level of digitization of the construction industry as provided through a McKinsey study.
(Source: McKinsey Global Instituate industry digitization indey; 2015 or latest avilable data)
Don’t make it a priority to deliver at a cheaper price to create your margins, but rather how you can solve the customer’s problem.
More.
What do you think about this commonly referenced error in strategy? Do you know of any other examples of similar errors of companies that come to your mind? Let me know in the comments section or via a direct message on this blog – I would love to hear from you.
If you liked this article, the ‘Blue Ocean’ strategy is a similar approach and thinking evolving around this idea. Check out this article in which I roughly describe the importance of innovation if you are interested in more.
Resources
Google Forfeits $500 Million Generated by Online Ads & Prescription Drug Sales by Canadian Online Pharmacies 2011, Department of Justice.
Krippendorff, K 2012, Outthink the competition: How a new generation of strategists see options others ignore (eng), 1st edn, Wiley, Hoboken, NJ.
Porter, M & Rudden, E 1982, ‘How Global Companies Win Out’.
Stoitzev, I & Porter, M 2020, ‘Strategy: Creating and Sustaining Competitive Advantage’.
Surblytė, G 2015, Competition on the Internet, vol. 23, Springer Berlin Heidelberg, Berlin, Heidelberg.
WOS Seminar - Seminar Sumary 2020, World Of Business Ideas.
