Why Do Some Business Strategies Fail?

Mr. Phillip Franklin was the Vice-President of White Star Line—the company that produced the Titanic (the ship, not the film!).

What he said before and after the Titanic sank to the bottom of the North Atlantic Ocean should be an interesting anecdote to answer this very important question: Why do some business strategies fail?

Before the Titanic sank, Mr. Franklin boldly claimed: “There is no danger that the Titanic will sink. The ship is unsinkable, and nothing but inconvenience will be suffered by the passengers.”

After the Titanic sank, he said: “I thought her unsinkable, and I based my opinion on the best expert advice,” clearly, not so bold anymore!

A CNBC article that quoted Mr. Franklin unsurprisingly named the piece “14 Spectacularly Wrong Predictions.” However, beyond wrong predictions, what these quotes reveal are deeper flaws inherent in human nature. These include confirmation bias, overconfidence, evading responsibility, and absolute certainty in the face of insufficient evidence—factors that also contribute to the failure of business strategies.

The Strategy Institute defines a business strategy as “a master plan that outlines the direction the organisation intends to take, the actions it will undertake, and the resources it will allocate to attain certain competitive advantages and drive sustainable growth.” Despite the clarity and intention behind such strategic planning, real-world outcomes often fall short of expectations. This discrepancy is highlighted in a study by Marakon Associates and the Economist Intelligence Unit, which involved senior executives from 197 companies with sales exceeding $500 million. The findings revealed that these companies only achieved 63% of the financial performance their strategies promised. In this blog, we shall delve into ten important reasons that cause business strategies to fail.

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The challenges that businesses face are complex in nature. A problem might not even have one identifiable cause. And even if it does, the cause might be drowned in the surrounding noise. For example, let’s say a company faces a decline in sales and attributes it to ineffective marketing. However, the actual cause of the sales decline could be the outdated technology used in the product itself. Clearly, any business strategy prepared to address the decline in sales by spending more on marketing might not work, because that was not the cause of the problem in the first place. Therefore, failing to comprehend and address the core issues in all its complexities is one of the leading causes that make business strategies fail.

Analytical tools used to identify business problems might be flawed, presenting a distorted view of the competitive landscape and customer behaviour. These tools may rely on outdated understandings to develop strategies that do not accurately reflect current market dynamics. A successful strategy requires an analytical framework that combines sophisticated qualitative and quantitative tools to grasp the subtleties of the market. Similar to the previous example, flawed analytical tools can lead to misdiagnoses, potentially causing business strategies to fail.

The capacity of an organisation is limited and the awareness of this limitation is key for creating effective business strategies. An organisation might not have the resources or skills to tackle something significant included in the strategic plan. It is, therefore, essential for companies to have a realistic assessment of what they can or cannot do. If that does not happen, then the goals of a strategic plan may become unattainable. Successful strategies need to consider the impact of new strategic initiatives on the overall organisation.  

Confirmation bias is a classic human flaw where individuals tend to see what they choose to see, often interpreting information in a way that validates their pre-existing beliefs. This can lead to the creation of strategies that do not always reflect objective realities. Strategy makers may fail to acknowledge contradictory evidence due to confirmation bias. Also, the leading players that have dominated the market may believe that they understand their product, competition, market, and consumers in an optimal way for them to have been successful for so long. This might lead to a certain degree of complacency as well, which is often one of the key reasons that business strategies fail. A culture of accommodating opposing opinions in decision-making can be a good way to counteract some of these biases.

Another important reason that business strategies fail is the organisation’s failure to adapt. Changes across societies, cultures, and technologies have been happening at an unthinkable speed and often businesses operating in their domain for a long period are resistant to some of these changes.  A glaring example of failure to adapt is the Kodak story. In the shift to digital technology in photography, Kodak failed to grasp the change in how people use photographs: from a tool to preserve memories to a medium for sharing moments. Dr. Kamal Munir of the Cambridge Judge Business School, University of Cambridge, writes in the Wall Street Journal, “Kodak’s top management never fully grasped how the world around them was changing. They hung on to now obsolete assumptions about who took pictures, why, and when…First, they try to ignore the new technology hoping it would go away by itself…Then they deride it using various justifications (too expensive, too slow, too complicated, etc.).” Business strategies that do not accept and respond to changing realities fail.

The history and the culture of an organisation are extremely important in determining whether a business strategy will succeed. Sometimes, strategies that aren’t aligned with the history and culture of the organisation and are imposed extrinsically fail to achieve their desired objectives. Even if a company decides to reframe its norms and values as part of its business strategy, it should allow time for this process. Company norms and values are often deeply embedded in the employees and require time to change.

Frequently changing business strategies can often lead to failure in attaining desired objectives. An article published in the Wharton Business Journal, Knowledge at Wharton, illustrates this point with the example of HP’s acquisition of Compaq and its competition with Dell. The article highlights HP’s inconsistent approach, “competing on price one week, service the next, while trying to sell through often conflicting, high-cost channels.” This lack of a coherent strategy can confuse customers and dilute the company’s brand message. Additionally, it would not allow time for a proper analysis of the business strategy to be able to gauge where the adjustments need to be made.

Leadership’s engagement with a strategic initiative sets the tone for the team members to follow. When leaders are not fully committed to or engaged with a business strategy, it might convey a lack of importance throughout the organisational hierarchy. This could lead to slow decision-making, a lack of initiative and direction, and diminished motivation for employees. A lack of engagement of the leadership in developing, communicating, and implementing strategic initiatives can lead to the failure of business strategies.

An otherwise brilliant strategy may fail because it does not effectively convey the vision, goals, and specific roles individuals and teams play in the success of a business strategy. Poor communication can lead to working at cross purposes. Establishing open and transparent communication channels can go a long way in making a particular business strategy successful.

Another reason for the failure of business strategies may stem from oversimplification and reductionist thinking. Finding easy solutions to complicated problems can lead to failure in strategic plans. The market is incredibly complex, with millions of participants each having separate reasons for making the decisions they make. There could be several other domestic and international factors influencing businesses as well. From internal processes and cultures to external market and technological advancements, the success of a business strategy depends on how nuanced a strategic plan is. A business strategy that offers simplistic solutions to complex problems is prone to failure.

While we have discussed ten key reasons why business strategies fail, it is important to recognise that since the outcome of a strategy is determined in the future and no one can predict the future, strategies need to incorporate space for flexibility and adaptability — even when they are crafted with sophisticated technological tools. The essential factor to understand is that business strategies encompass both planning and execution. A meticulously crafted business strategy, along with a clear roadmap for its effective execution, can make the difference between the success and failure of a business.

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