Myths of Strategy

Introduction

In the fast-paced world of business, leaders are constantly seeking advice on how to succeed and stay ahead of the competition. However, much of the conventional wisdom surrounding business strategy is based on anecdotal evidence and incomplete observations. Jérôme Barthélemy's book "Myths of Strategy" challenges these commonly held beliefs and presents a more nuanced view of what truly drives business success.

This book summary explores six of the thirty myths discussed in Barthélemy's work, providing real-life examples and research-backed insights to debunk these misconceptions. By examining these myths, readers will gain a better understanding of the complexities involved in developing effective business strategies and learn more reliable approaches to achieving success.

Myth 1: "Success Requires Careful Planning"

Many business leaders believe that meticulous planning is the key to success. However, the story of IKEA demonstrates that this isn't always the case.

The IKEA Example

IKEA's worldwide success is often attributed to its self-assembly furniture, Scandinavian design, low-cost production, and self-service stores. But these features weren't the result of a carefully planned strategy. Instead, they emerged as responses to challenges the company faced along the way.

For instance, IKEA didn't start as a furniture designer or manufacturer. Initially, they were simply distributing other companies' furniture. It wasn't until a group of Swedish furniture sellers convinced Scandinavian furniture producers to boycott IKEA that the company was forced to design its own furniture. This unexpected turn of events led to the development of IKEA's characteristic look and functionality.

Deliberate vs. Emergent Strategies

IKEA's success story highlights the importance of both deliberate and emergent strategies:

1. Deliberate strategy: A plan based on careful analysis and forecasting.
2. Emergent strategy: A strategy that develops in response to unforeseen circumstances or opportunities.

Research shows that while organizations do need deliberate strategies, it's best for these strategies to remain high-level. This approach allows mid-level leaders the flexibility to adapt and respond to changes within the broader strategic framework.

The Importance of Flexibility

The key takeaway from this myth is that while planning is important, it shouldn't be so rigid that it prevents a company from adapting to new circumstances. Successful businesses often combine deliberate planning with the ability to pivot and embrace emergent strategies when necessary.

Myth 2: "Talent is the Main Factor in Success"

While talent is undoubtedly important, research suggests that it's not the only – or even the primary – factor in determining success. Other elements, such as social influence and luck, play significant roles.

The Music Lab Experiment

Researchers conducted an experiment using a website called Music Lab to demonstrate how difficult it is to predict product success based solely on quality or talent. The experiment involved 14,000 participants who could listen to, download, and rate 48 unknown songs. The participants were divided into nine groups:

• Eight groups could see each other's ratings and downloads.
• One group (the "independent world") couldn't see the ratings or downloads.

The results were surprising. The same song could be ranked first in one world, fortieth in another, and twenty-eighth in the independent world. This variation showed that social influence had a much stronger impact on a song's success than its inherent quality or the talent of the artists.

The Matthew Effect

This phenomenon is known as the Matthew effect, named after a Bible verse that essentially states that the rich get richer while the poor get poorer. In the context of the music study, people were influenced to upvote popular songs and downvote unpopular ones, regardless of their personal preferences.

The Mona Lisa: A Case Study in Luck and Social Influence

The famous painting, the Mona Lisa, provides a striking example of how social influence and chance events can dramatically alter the perceived value of something. Today, the Mona Lisa is responsible for attracting about 80 percent of visitors to the Louvre. However, for centuries, it was considered one of Leonardo da Vinci's lesser works.

The painting's fame skyrocketed only after it was stolen by a Louvre employee in 1911 and hidden for two years. This event catapulted the Mona Lisa to worldwide fame, demonstrating how unpredictable factors can play a crucial role in success.

The Role of Talent

While talent is important, this myth highlights that it's not the sole determinant of success. Factors like social influence, timing, and even pure chance can have an enormous impact on outcomes. This understanding can help business leaders and entrepreneurs to:

1. Focus on creating opportunities for their products or services to gain positive social influence.
2. Be prepared to capitalize on unexpected events or trends.
3. Recognize that failure doesn't necessarily reflect a lack of talent or quality.

Myth 3: "Firm Goals Lead to Success"

Many business leaders believe that setting firm, specific goals is the key to driving success. However, research and real-world examples show that this approach can sometimes lead to unintended negative consequences.

The General Motors Example

In 2002, General Motors (GM) set a goal to increase its market share from 28.2 percent to 29 percent. To achieve this, they heavily discounted their vehicles. While they did reach their target, the strategy backfired – GM ended up losing money on every car they sold.

The Wells Fargo Scandal

In 2013, Wells Fargo implemented a strategy to improve cross-sales metrics and foster long-term relationships with banking customers. They translated this strategy into a specific goal: upsell eight services to current clients. To motivate employees, they offered bonuses for meeting this target. The result was disastrous – employees engaged in unethical practices, including opening accounts without customer knowledge, to meet the goals and earn bonuses.

The Problems with Single-Focus Goals

These examples illustrate the dangers of focusing too narrowly on a single, hard-line goal. When companies direct all their efforts towards achieving one specific target, they often lose sight of other important factors, potentially harming the long-term health and success of the organization.

Better Approaches to Goal-Setting

Research suggests several alternative approaches to goal-setting that can lead to better outcomes:

1. Obliquity: This principle suggests that indirect approaches can sometimes be more effective than direct ones. For example, an Indian IT company improved customer satisfaction by focusing on employee happiness first.

2. Balancing short-term and long-term goals: It's crucial to consider both immediate targets and long-term objectives when setting goals. Strategy is complex, and distilling it into a single metric can be overly simplistic and potentially harmful.

3. Multiple goals and metrics: Instead of focusing on a single goal, companies should consider multiple objectives and use various metrics to measure success. This approach provides a more holistic view of performance and reduces the risk of unintended consequences.

4. Careful use of stretch goals: While stretch goals can be effective in some situations, they should be used cautiously. Research shows that stretch goals work best when a company is already performing well. For struggling companies, setting overly ambitious targets can lead to further decline and demoralization.

The Importance of Context

The key takeaway from this myth is that goal-setting should be done thoughtfully and with consideration for the broader context of the business. Goals should align with the company's overall strategy, take into account both short-term and long-term objectives, and be flexible enough to adapt to changing circumstances.

Myth 4: "The Best Strategy is to Beat the Competition"

Many entrepreneurs and business leaders believe that the path to success lies in entering a thriving market and outperforming competitors either on price or quality. However, this approach comes with significant risks and may not always be the best strategy.

The Problems with Focusing Solely on Competition

There are several issues with the "beat the competition" mindset:

1. High competition in flourishing sectors: Thriving markets often have intense competition. Without a clear competitive advantage, it's challenging for a new entrant to dominate the market.

2. Risk of extreme positioning: Focusing solely on being the cheapest or the highest quality option can be risky. Market fluctuations can quickly shift consumer preferences, leaving companies vulnerable if they're positioned at either extreme.

3. The dangers of the middle ground: While being "stuck in the middle" is often seen as undesirable, it can actually be the lowest-risk position. Companies that offer moderate quality at moderate prices are less vulnerable to market shifts than those at the extremes.

The Challenges of Market Segmentation

Another common dilemma for businesses entering a new market is whether to focus on a single segment or try to appeal to a broad audience. While a broad approach can work in some cases (like movie marketing), it's not always effective for products.

The Importance of Knowing Your Product's Identity

Rather than trying to be all things to all people, it's crucial to understand your product's identity and target the most appropriate audience. This approach allows you to focus your resources and efforts more effectively.

Alternative Strategies

Instead of always trying to beat the competition in established markets, consider these alternatives:

1. Look for less competitive sectors: If your product or service doesn't have a clear competitive advantage in a thriving market, it may be better to enter a less crowded sector where you can stand out more easily.

2. Focus on your unique strengths: Identify what makes your offering unique and target the audience that values those specific attributes.

3. Create a new market: Instead of competing in existing markets, consider creating a new category or niche where you can be the leader.

4. Collaborate rather than compete: In some cases, partnering with other companies or even competitors can lead to better outcomes than direct competition.

The Value of Strategic Thinking

The key lesson from this myth is that blindly focusing on beating the competition isn't always the best strategy. Instead, businesses should think strategically about their position in the market, their unique strengths, and the most effective way to create value for their customers. Sometimes, this may mean avoiding direct competition altogether and finding alternative paths to success.

Myth 5: "Being the Best or Cheapest Leads to Success"

Many business leaders believe that offering either the highest quality product or the lowest price is the key to market dominance. However, the reality is more complex, especially in today's digital landscape.

The Apple Example

Apple is often cited as a prime example of a company succeeding through superior quality and innovation. However, a closer look reveals a more nuanced picture:

• While the iPod and iPhone achieved overwhelming market dominance, the Mac computer never captured more than about 10% market share, despite its widely recognized quality and performance.

• The true key to the iPod and iPhone's success was not just their quality, but the creation of the App Store and iTunes – turning Apple into a platform for other creators.

• This platform strategy wasn't initially planned but emerged in response to customer demands. Steve Jobs initially favored a closed system but opened up the App Store to third-party developers due to user pressure.

The Amazon Strategy

Amazon provides another example of a company that succeeded by becoming more than just a retailer:

• Amazon opened its platform to other sellers, creating a marketplace.
• This move was initially criticized as cannibalizing Amazon's own sales.
• However, it allowed Amazon to identify successful products and compete in those areas, while benefiting from the sales of other merchants on its platform.

The Power of Complements

Both Apple and Amazon's success stories highlight the importance of offering complements to core products or services:

1. Platforms: By creating platforms (App Store, Amazon Marketplace), these companies extended their reach and value beyond their own products.

2. Ecosystem: The complementary products and services create an ecosystem that enhances the value of the core offering and makes it harder for customers to switch to competitors.

3. Network effects: As more users and creators join the platform, it becomes increasingly valuable, creating a virtuous cycle of growth.

Beyond Best and Cheapest

In the digital age, being the best or the cheapest is often not enough to guarantee success. Companies need to think beyond their core products and consider:

1. How can they create additional value for customers?
2. What complementary products or services can they offer?
3. How can they leverage network effects to strengthen their market position?

The Importance of Adaptability

Both Apple and Amazon's stories also underscore the importance of adaptability. Their most successful strategies weren't always part of the original plan but emerged as responses to market demands and opportunities.

Key Takeaways

The main lessons from this myth are:

1. Quality and price are important, but they're not the only factors that determine success.
2. Creating platforms and ecosystems can be more powerful than focusing solely on product features or price.
3. Complementary offerings can significantly enhance the value of core products or services.
4. Flexibility and willingness to adapt strategies in response to market feedback are crucial for long-term success.

Myth 6: "The Best Leaders Have Vision"

Many people believe that the most successful business leaders are those with a clear, unwavering vision. However, research and real-world examples suggest that the relationship between vision and success is more complicated than it might seem.

The CEO Perception Study

A study published in the Journal of Applied Psychology revealed interesting insights about how people perceive leadership:

• Managers were presented with four scenarios involving CEOs with different approaches and outcomes.
• The CEO who stuck with a single strategy and succeeded was rated highest.
• Surprisingly, in some cases, a CEO who stuck with one strategy and failed was rated higher than one who tried several strategies and succeeded.

This study highlights a common bias: people tend to admire leaders who appear to have a clear vision, even if that vision doesn't lead to the best outcomes.

The Survival Game Experiment

Another study in the late 1990s used a survival game to explore leadership dynamics:

• Groups had to rank survival objects in order of importance.
• They chose leaders through one of three methods: discussion, qualification-based selection, or random selection.
• Unexpectedly, groups with randomly chosen leaders performed best.
• However, these successful groups gave lower ratings to their leaders compared to other groups.

This experiment suggests that while having a designated leader can be important, the perception of strong leadership doesn't always correlate with actual performance.

The Reality of Leadership

Real-world examples further illustrate the complexity of leadership and vision:

• Andy Grove, former CEO of Intel, emphasized that leaders often have to make decisions without perfect information. Sometimes, they need to act based on current knowledge and be prepared to adjust course later.

• The choice between hiring an insider or an outsider for a top leadership position isn't straightforward. Studies show that outsiders tend to produce either the best or worst results, while insiders are more likely to maintain stability.

The Value of Adaptability

These findings suggest that effective leadership is less about having a fixed vision and more about:

1. Being able to make decisions with incomplete information
2. Willingness to adjust strategies based on new information or changing circumstances
3. Balancing the need for stability with the potential for transformative change

The Role of Perception

While having a vision (or appearing to have one) can inspire confidence in followers, it's important to recognize that:

1. Few leaders actually have a clear, start-to-finish vision that goes exactly as planned.
2. The perception of visionary leadership doesn't always correlate with actual success.
3. Adaptability and decisiveness in the face of uncertainty are often more valuable than rigid adherence to a predetermined vision.

Key Takeaways

The main lessons from this myth are:

1. While vision can be inspiring, it's not the only or even the most important quality of effective leadership.
2. Successful leaders often need to balance visionary thinking with pragmatism and adaptability.
3. The ability to make decisions in uncertain conditions and adjust course when necessary is crucial.
4. People's perceptions of leadership quality don't always align with actual performance or results.

Final Thoughts

Jérôme Barthélemy's "Myths of Strategy" challenges many commonly held beliefs about what drives business success. By examining these myths, we gain a more nuanced understanding of effective strategy and leadership. Here are some key takeaways from the book:

1. Flexibility is crucial: While planning is important, the ability to adapt to changing circumstances often plays a bigger role in success than rigid adherence to a predetermined strategy.

2. Success is multifaceted: Talent, quality, and competitive pricing are important, but factors like social influence, timing, and even luck can significantly impact outcomes.

3. Goal-setting requires careful consideration: Single-minded focus on specific targets can lead to unintended negative consequences. It's important to consider multiple objectives and maintain a balance between short-term and long-term goals.

4. Competition isn't everything: Sometimes, the best strategy involves finding less competitive markets, focusing on unique strengths, or even collaborating rather than competing directly.

5. Value creation goes beyond core offerings: In the digital age, creating platforms and ecosystems that offer complementary products or services can be more powerful than focusing solely on being the best or cheapest option.

6. Effective leadership is about more than vision: While having a vision is valuable, the ability to make decisions in uncertain conditions and adapt to changing circumstances is often more crucial for success.

By understanding and challenging these myths, business leaders can develop more effective strategies, make better decisions, and ultimately increase their chances of long-term success in today's complex and rapidly changing business environment.