Strategic Drift

1.  What is Strategic Drift?

Strategic drift occurs when a company, even one that has enjoyed considerable success, responds far too slowly to changes in the external environment and continues with the strategy that once served it very well. This is despite the fact that the company is obviously increasingly out of touch with external trends.

There are countless examples of companies that continue to persevere with their once successful business model when it is overwhelmingly evident that the model is increasingly inappropriate in terms of future trends.

One of the main causes of strategic drift arises from changes in the technological environment, and in particular the role of Web 1.0 and now Web 2.0 applications.

Just consider some examples:

  • compare and contrast the way you use the internet today with the way you did in the recent past;
  • compare and contrast the way you choose to make purchases;
  • compare and contrast the way you communicate and share information, music, photos;
  • compare and contrast the way you now access audio and video entertainment, as well as the way in which you may play electronic games;
  • compare and contrast the way you determine where you will go for a vacation, to eat out etc and how you book these.

The above highlight the sources of strategic drift, but of course there is also an internal dimension and that is the internal dimension, when the leadership of the organization continues to persevere with the obsolete or largely redundant. In the spring of 2011, the CEO of Kodak continued to argue that the company's photo printing business would be saved by the desire of "soccer Mom's" to have prints of children's events. Unbelievable!

Similarly, as the tools to assist leaders become increasingly sophisticated, leaders need to make use of these to enhance decision making. The English Premier League is a very competitive league and each season three of the twenty member teams are relegated to a lower division. This fate is financially catastrophic for the relegated clubs so they will seek to do anything to avoid this fate. The season starts in August and ends in early May. Clubs are only allowed to buy players during the summer break or in the month of January. One of the key skills of the coach or manager is the ability to buy and sell shrewdly. So the club needs full confidence in the coach's decision-making in terms of transfer of players activity.

In a season the 20 clubs, play each other twice (i.e. a total of 38 games). After 13 games of the 2011-12 season, Sunderland was the first club to sack their manager, Steve Bruce a coach who allegedly refused to keep pace with the times.

How does an organization assess whether it is in danger of experiencing strategic drift?

A company must constantly monitor its external and internal environment in order to assess whether it is:

  • ahead of the curve;
  • in pace with page;
  • a laggard behind the curve

You should now watch the video clip below as it provides a clear explanation of strategic drift.

 

 

 

2. Examples of Strategic Drift

Blockbuster

Do you remember that when you wanted to rent a DVD you would go to a store. And one store in particular tended to have a large number of popular DVDs so you could be pretty sure that you could rent your first choice selection. That company was Blockbuster but it was slow to adapt wholeheartedly to the obvious switch from "bricks" (i.e. stores) to "clicks" (i.e. internet based selection) and  was overtaken by Netflix.

Netflix

The future is clearly online entertainment and in the late summer/early fall of 2011, the share price of Netflix - which had soared - fell by some 50 per cent or so. This was because Netflix was pushing its customers to abandon DVDs by mail before they were ready to and also due to the emergence of major rivals in online entertainment (e.g. Amazon; Hulu).

Here the co-founder and CEO of Netflix explains his decision:

 

 

Nice looking pool? Let's grab a beer...that's that problem sorted!

Afraid not!

 

Kodak

Let me ask you two questions:

  1. what device do you increasingly use to take photos?
  2. when you want to look at photos of yours or your friends, what do you do?

If you are like me the answers are:

  1. smartphone;
  2. facebook

Yet even in 2011 the CEO of Kodak was assuring everyone that the company would continue to do well because soccer moms would want to print off snaps? We had a chuckle at this in the spring of 2011 in my MGT 490 class. You don't believe me? I don't blame you, so check out this article.

Best Buy (any large specialty retailer)

In the age when consumers had access to limited information on products and brands, a large attractive showroom with knowledgeable staff was much valued by customers who drove to such stores to make their purchases. Customers were even prepared to pay a premium to buy expensive goods from trusted retailers.

With the advent of the constantly connected consumer (CCC), and the emergence of online retailers, customers know that the best deals are available online. Why does anyone go to Best Buy? To make an inspection or to make a purchase.

And these changes are happening in other countries too. But instead of doing everything possible to re-invent itself in order to avoid the same fate as Circuit City, what does Best Buy do? It decides to focus upon international markets.

In 2008 it opened its first stores in the UK. In the fall of 2011 it decided to close all its loss-making stores.

What went wrong? According to Best Buy, major changes occurred in the UK during this period. There was a recession and online shopping became more popular.

Gosh....who could have foreseen that in 2008?

A recession? An increase in e-commerce. No doubt some Best Buy executive is convincing himself that thankfully conditions in the USA are very different.

 

Others?

Give yourself five minutes and no doubt you too will identify many more.

 

5. Can strategic drift be a good thing?

I believe that it can so long as the company accepts fully the consequences.

Research in Motion (RIM) makes Blackberry smartphones and dominated the b2b market in the USA. Its phones had one unique advantage - encryption security.

However, once consumers began to use these phones, it was obvious that before long the b2b market segment would cease to be the mainstream and instead be demoted to a niche, albeit it would not decline in absolute terms.

Companies like Apple appealed greatly to consumers because the products were easy to use, well designed and offered many Apps.

Were consumers going to be excited about RIM's encryption properties? The answer to this question is crucial.

  • Yes - then RIM was wise to try and compete in the mainstream b2c segment;
  • No - thenRIM was foolish to try and compete in the mainstream b2c segment; it should have accepted that its fate at best was to dominate the niche b2b segment.

RIM obviously thought one of two things:

  • we can succeed in b2b because consumers will value encryption
  • consumers will buy Blackberry even although it does not offer what they value

And so RIM moved into the b2c segment. This appears to have been a disaster in smartphones, but undaunted they then tried to succeed in the tablet market. Nothing fails like failure.

On the other hand, I would suggest that if we examined countries that are considered 'high political risk' and 'non-democratic', I would suspect that RIM is likely to be a market leader in such markets.

 

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Comment by Kara Pennington on September 12, 2013 at 1:36pm

The 'soccer mom' aspect makes me chuckle. Today's electronics are far advanced to look back on old ways of doing things.

Comment by Kara Pennington on September 12, 2013 at 1:28pm

I really enjoyed the video!

Comment by Alisa on September 11, 2013 at 6:04pm

It's fascinating how some of these scenarios seem so obvious to outsiders, yet the corporations fail to see the big picture.

Comment by Sarah Ginn on April 23, 2012 at 6:00pm

The first video does a great job of explaining strategic drift.

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