Michael Porter is generally considered to be one of the foremost experts on the topic of strategy. In an interview in Joan Magretta’s book Understanding Michael Porter, he touches on the most common strategy mistakes.
Here are the five most common mistakes managers make with regards to strategy, according to Porter:
1. Trying to be the best
Porter’s work is founded on the idea that a company’s strategy should focus on what makes that company different from its competition. Yet some companies seem dead set on competing with each other on identical value propositions, trying to come out on top.
This competing to “be the best” is what Porter calls the “granddaddy of all mistakes”. It is almost impossible to do the same thing as everyone else, while at the same time achieving better results.
Instead, companies should focus on their own strengths, and meaningfully differentiate their offering from that of competitors.
A good example of this is Nintendo’s introduction of the Wii. Rather than going head to head with Sony and Microsoft on visual fidelity and processing power, they bet on a more playful, inclusive device.
2. Confusing marketing with strategy
Too often, Porter says, strategy is built purely around the value proposition, and what customers want.
While this is a logical and necessary part of strategy, a complete strategy takes into account not just the customer or demand side, but the supply side as well. How do you deliver on this demand in a way that is more efficient and effective than your competitors?
To do this, you need a value chain that is tailored to your offering. Achieving a competitive advantage is only possible if you have both a unique value proposition AND a value chain that is tailored to that proposition.
An interesting example of this is Microsoft’s current acquisition spree. Rather than try to license content for their subscription model like everyone else, they’re simply buying up big studios. This strategy ensures premium content for the platform on one hand, and allows for vertical integration on the other.
3. Overestimating strengths
Managers tend to have an inward looking bias. Looking only within the company, they will identify strong areas and call them strengths.
But real strength, for strategy purposes, is defined in relation to competitors. What can you do better than your rivals? And again, “better” has to be the result of performing different activities in a different configuration.
As an example, consider the many NFT games cropping up. Simply having NFTs might be enough of a strength in the blockchain and crypto market, but to succeed as games, they need quite a bit more. It remains to be seen how these games stack up against other games, and what, if anything, will be their lasting appeal.
4. Getting the definition of the business wrong
Another common strategy mistake is when managers get the definition of the business wrong. This happens when they define the business too broadly, to open up more options for differentiation.
The risk is that the differences between the core business and the new ventures are underestimated, which can lead to costly mistakes.
Consider, for example, Google’s introduction of the Stadia. Sure, they had the cloud technology to make it work, but Google never really got it off the ground. Two weeks ago, it was reported that Google “deprioritized” the platform in favor of white-label services.
5. Not having a strategy at all
The worst strategy mistake—and the most common one—is not having a strategy at all. Most executives think they have a strategy when they really don’t.
This can happen for a number of reasons, chief amongst which are an aversion to accepting tradeoffs, and favoring the short term over the long term.
I’ll let you come up with your own example of a company without a strategy–it shouldn’t be that hard.
Curious how your own strategy stacks up?
Check out my essay on the elements of strategy according to Porter, and use them to improve your strategy.
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