In 1878, Thomas Edison began his experiments to invent the incandescent light bulb. Not until October of 1879 was he able to conduct his first successful test. Edison later commented, “I never considered my attempts as failures; I just found 10,000 ways not to make a light bulb.” While I’m sure you’ve heard this story before, have you ever wondered how Edison identified 10,000 ways? It seems to me Edison’s approach applies to business strategy formation.
The answer is really quite simple. Edison compiled a list of potential filament materials based upon his predecessors’ attempts to develop the light bulb. Then he tested each material until he succeeded. How’s that supposed to help executives develop better strategies? Executives also need to develop a list of factors, or as I call them “decision criteria,” before selecting their firm’s business strategy. Sounds simple, right? But it is surprising how few companies do this.
As you probably know, Motorola developed the first cell phones and by 1995 had captured 60% market share. However, when digital technology was introduced, the company delayed its market entry. As a result, by 1997 its market share dropped to 34% and in 1998 the company was forced to lay off 28,000 employees. In hindsight, we’re amazed that this market leader delayed launching the technology that is ubiquitous today.
How could the leadership team let this happen? Motorola delayed entry because a) the design team was uncertain which digital standard would be accepted, and b) market research showed that customers wanted smaller cell phones than the early digital designs could accommodate.
Motorola discounted the impact of two other important criteria. Digital mobile provided a) sharper communication with fewer lost connections for customers, and b) existing infrastructure of the carriers could handle 10 times more digital traffic. Both these factors played a significant role in the market success of digital mobile. Since Motorola never made a list of all the factors that should have been considered for their decision, the factors they left out torpedoed their strategy. This strategic decision was so complex that even a seasoned team like Motorola’s left out important factors because they did not consciously compile a list of decision criteria.
How does this impact your strategy deliberations?
When you are confronted with a strategic challenge, consider developing a list of factors before you begin the analysis. I find that considering 6 broad criteria categories covers the bases and helps avoid being blindsided. The six criteria categories, together with some examples of specific criteria are:
- Technical: these criteria could include product specs, development timing, technical risk
- Environmental: demographics, cultural attitudes and philosophy or regulatory trends
- Strategic: creating / responding to barriers to entry, synergies, or market influence
- Marketing and Sales: market share, brand awareness, market size
- Operational: field service requirements, manufacturing risk, logistics challenges
- Financial: ROI, access to capital, profitability
Even though executives know they should consider all important factors, because there is so much to do and so little time, we often neglect to spend the time to identify and evaluate all the important factors. When this happens we place our decision at risk. By not optimizing our analysis, we don’t know what we don’t know. And if we have failed to analyze a critically important factor, we’re blind-sided. Motorola didn’t perform an incorrect analysis. They failed to identify the critical factors that needed to be analyzed.
To avoid being blind-sided, take Thomas Edison’s approach and compile a list of important criteria upfront before selecting your company’s strategy.