Avoid Strategic Drift In Your 3pl Relationship With A Sound Governance Structure

Strategic drift occurs when a company, especially 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. There are four phases in strategic drift; incremental change , strategic drift , flux and transformational change or death . Phase 1 is characterized by relatively long periods during which strategies are either unchanged or change incrementally.

Preservation of the status quo leads to resistance to change or resistance to any form of improvement. In this situation, managers veer towards a defensive strategy that is more concerned with reducing the risk of loss than increasing the chance of gaining competitive advantage. Strategy would focus more on cost reduction as a means of remaining competitive, rather than developing product attributes and added value. Marketing strategy becomes product or process oriented rather that customer oriented . Not only does it ignore the needs of the consumer, it also removes the organization’s focus on where the market is going and what products will be in high demand in future.

Top Ten Business Pivots Of All Time

Porter’s generic strategies detail the interaction between cost minimization strategies, product differentiation strategies, and market focus strategies. Porter developed a framework for analyzing the profitability of industries and how those profits are divided among the participants in 1980. In five forces analysis he identified the forces that shape the industry structure or environment. The framework involves the bargaining power of buyers and suppliers, the threat of new entrants, the availability of substitute products, and the competitive rivalry of firms in the industry.

Strategic drift can be defined as a gradual deterioration of competitive action that results in the failure of an organization to acknowledge and respond to changes in the business environment. Drift is a reflection of a static outlook, which over time becomes more distant from the reality of shifting conditions in the economy, technology and consumer demand. The consequence of strategic drift is a decline in competitive advantage through managerial inertia, an increase in operating costs and the decline of innovation and market adaptability. A number of strategists use scenario planning techniques to deal with change. The way Peter Schwartz put it in 1991 is that strategic outcomes cannot be known in advance so the sources of competitive advantage cannot be predetermined. The fast changing business environment is too uncertain for us to find sustainable value in formulas of excellence or competitive advantage.

Revising All Those Business Models!

In today’s modern business environment, customers’ demands and expectations are increasing every day. Every company that does not constantly innovate or research and quickly accept or adapt to the changes within their industry, will find themselves left out. Strategic drift represents the gap between what the market expects and what a business is delivering – and it gradually increases over time. At this point a change programme needs to be implemented to realign the strategic direction of the organisation with its external environment. There is also the situation where although the firm may see the environmental drift, it refuses to align as it binds itself to the successful strategies of the past. These strategies become the company’s core around which it revolves and has its competitive advantage.

• Marketing strategy becomes product or process oriented rather that customer oriented .
• The progress of strategy since 1960 can be charted by a variety of frameworks and concepts introduced by management consultants and academics.
• Strategy would focus more on cost reduction as a means of remaining competitive, rather than developing product attributes and added value.
• Preservation of the status quo leads to resistance to change or resistance to any form of improvement.
• In this situation, managers veer towards a defensive strategy that is more concerned with reducing the risk of loss than increasing the chance of gaining competitive advantage.

Another contributory factor can also be unwillingness of the firm to alter the current relationships with suppliers, customer base or the internal skills to align with the market. Phase 3 may be a period of flux as management pressured to alter the firm’s strategies in response to downturn in profit does so but not in any clear direction. The activities implemented to detect and detract from strategic drift encourage the view of strategy as an evolving process. Sustaining business performance is based on the dynamic capacity to generate new strategies and business models as economies, industries and markets evolve. Strategic drift iZ likely to occur when cognitive processes and managerial assumptions are unable to acknowledge or to shift with changes in the external environment. The strategic decisions made within an organization are framed by culture, which in turn develops around organizational structure, hierarchy, routines, internal controls, symbols and shared narratives.

Instead, scenario planning is a technique in which multiple outcomes can be developed, their implications assessed, and their likeliness of occurrence evaluated. According to Pierre Wack, scenario planning is about insight, complexity, and subtlety, not about formal analysis and numbers.

These forces affect the organization’s ability to raise its prices as well as the costs of inputs for its processes. The strategic management discipline originated in the 1950s and 1960s. Among the numerous early contributors, the most influential were Peter Drucker, Philip Selznick, Alfred Chandler, Igor Ansoff, and Bruce Henderson. The discipline draws from earlier thinking and texts on ‘strategy’ dating back thousands of years. Prior to 1960, the term “strategy” was primarily used regarding war and politics, not business. Many companies built strategic planning functions to develop and execute the formulation and implementation processes during the 1960s. Companies need to monitor both its internal and external environments.

Strategic Drift

They developed techniques for estimating customer lifetime value for assessing long-term relationships. The concepts begat attempts to recast selling and marketing into a long term endeavor that created a sustained relationship . Customer relationship management software became integral to many firms. In 1997, Clayton Christensen took the position that great companies can fail precisely because they do everything right since the capabilities of the organization also define its disabilities. Christensen’s thesis is that outstanding companies lose their market leadership when confronted with disruptive technology.

Carl Sewell, Frederick F. Reichheld, C. Gronroos, and Earl Sasser observed that businesses were spending more on customer acquisition than on retention. They showed how a competitive advantage could be found in ensuring that customers returned again and again. Reicheld broadened the concept to include loyalty from employees, suppliers, distributors and shareholders.

Segmentation, Targeting And Positioning (marketing)

The paradigms of managerial assumptions provide the foundation of organization culture and have a strong influence on decision making. Decline in performance is a late signal detected when the damage has already been done. Deterioration in performance is observed through declining revenues, relative market shares, profitability and cash flow. At this stage, strategic management has a tendency to go into a stage of unrest as objectives shift to cost cutting, which further damages long-term performance. The next stage would be the recognition of the need to change the company’s strategy and to embark on transformational change. The rate of change in the external environment is accelerating and small, incremental changes in strategy are not enough on their own to remain in touch.

Most times, a series of small, incremental changes to strategy enable the business keep in touch with the external environment. K. Prahalad described the idea of core competency in 1990, the idea that each organization has some capability in which it excels and that the business should focus on opportunities in that area, letting others go or outsourcing them. Further, core competency is difficult to duplicate, as it involves the skills and coordination of people across a variety of functional areas or processes used to deliver value to customers.

The flowchart to the right provides a process for classifying a phenomenon as a scenario in the intuitive logics tradition. In 1998, Mintzberg developed these five types of management strategy into 10 “schools of thought” and grouped them into three categories. It consists of the schools of informal design and conception, the formal planning, and analytical positioning. The second group, consisting of six schools, is more concerned with how strategic management is actually done, rather than prescribing optimal plans or positions. The six schools are entrepreneurial, visionary, cognitive, learning/adaptive/emergent, negotiation, corporate culture and business environment. The third and final group consists of one school, the configuration or transformation school, a hybrid of the other schools organized into stages, organizational life cycles, or “episodes”. Most companies start going down the drain the moment they refuse to recognize the changes that are being brought into that industry.

Strategy Bytes: Network Externalities

The progress of strategy since 1960 can be charted by a variety of frameworks and concepts introduced by management consultants and academics. These reflect an increased focus on cost, competition and customers. Porter wrote in 1980 that companies have to make choices about their scope and the type of competitive advantage they seek to achieve, whether lower cost or differentiation. Strategic drift can be defined as any situation in which organizations fail to achieve their expected or planned strategic outcome. Sometimes, different situations including a changing business environment can result in challenges that altogether influence an organization’s strategy. Strategic drift occurs when a business fails to adapt to a changing external environment, and assumes that old marketing or customer service tactics will continually work in changing environments etc.

By outsourcing, companies expanded the concept of the value chain, with some elements within the entity and others without. Strategic management provides overall direction to an enterprise and involves specifying the organization’s objectives, developing policies and plans to achieve those objectives, and then allocating resources to implement the plans. Academics and practicing managers have developed numerous models and frameworks to assist in strategic decision-making in the context of complex environments and competitive dynamics. Strategic management is not static in nature; the models often include a feedback loop to monitor execution and to inform the next round of planning.

Strategic thinking involves the generation and application of unique business insights to opportunities intended to create competitive advantage for a firm or organization. It involves challenging the assumptions underlying the organization’s strategy and value proposition. Porter wrote in 1980 that strategy target either cost leadership, differentiation, or focus. These are known as Porter’s three generic strategies and can be applied to any size or form of business. Porter claimed that a company must only choose one of the three or risk that the business would waste precious resources.