Watch out for strategic drift

Watch out for strategic drift

The external environment is changing fast and is impacting on business positively and negatively. Companies that ignore changes in the environment will find that they have lost their competitive advantage. Nokia and Kodak experienced a serious fall in their competitive advantage as a result of ignoring activities in the environment. Kodak eventually had to file for bankruptcy because it couldn’t face the heat anymore after it ignored the new technology in digital photography.

This is a result of companies failing to make necessary changes in their strategies to adapt to changes in the environment. This phenomenon is called strategic drift. Strategic drift happens when the strategy of a business is no longer relevant or no longer fits the external environment facing it.
Strategic drift is a reflection of inaction by management to the realities of shifting conditions in the economy, technology, and consumer demand. The result of strategic drift is a decline in competitive advantage and subsequently performance.

Astute managers are always looking for signs of strategic drift so that they make necessary changes to their strategy before the carpet is swept from their feet as what happened to Nokia when adept competitors entered the mobile phone industry bringing in the smartphone.
Strategic drift usually happens as a result of a number of factors some of which are discussed below. Strategic drift will occur when a business fails to adapt to a changing external environment for instance due to social or technological changes. Sometimes it results from strategies that worked before in terms of competitiveness which no longer work but management still holds on to these

strategies without adopting new strategies in line with developments in the environment.
Strategic drift can creep in when complacency sets in because the company had been successful in the past and so management assumes that previous successes will continue. The other cause is when senior management deny there is a problem even when there is evidence to that effect. Instead of accepting change management chooses to resist change.
Symptoms of strategic drift can be detected when the board and management fail to question certain of their decisions. The board will adopt a group think mentality instead of accepting divergent ideas. This will result in inaction within the board. The other signal is when the board and management try to preserve the status quo without paying attention to developments on the external environment which require changes in the organisation structure, product innovation, adoption of new technology or improvements in customer relationships.

Preservation of the status quo leads to resistance to change or resistance to any form of organisational improvement by management. Another signal of strategic drift is a decline in performance as revenues, relative market share, profitability, and cash flows decline. If management does not do anything at this stage the business will fail.
Strategic drift goes through four phases namely: incremental change, strategic drift, flux and transformational change.
During the incremental change phase there is usually little significant change in the external environment so a series of small changes to the strategy will enable the business to remain in tune with the external environment. There is no problem at this stage.

However as changes in the external environment start accelerating and small incremental changes to the strategy no longer work, the business moves into a phase called strategic drift. The business will begin losing its competitive advantage.
This will now call management to carry out drastic measures the rescue the situation the business moves into the next phase – the flux phase.

When the business is in flux phase, management becomes very indecisive on crucial issues. A gap develops between what the market expects from the company and what the company is offering. Disagreements between senior management as to what should be done to address this situation creep in. The situation would now have developed into a significant strategic drift.
After the flux phase it might dawn to management that what is required is transformational change to the strategy or else the business fails. The transformational change phase will require strong leadership, which in most cases will be external leadership, to come and implement drastic changes to the strategy.

There are examples of companies that failed to take note of changes in the environment and suffered seriously from strategic drift. Kodak is one of those companies that failed to respond to the changes in the photography industry. Kodak created the photography technology but it failed to respond to rapid developments in the digital photography by not adopting the new disruptive technology.

As a result it lost the market share and had to file for bankruptcy. Leadership failed to change with the changes in the environment. The failure of Kodak wasn’t a result of ignorance on the part of management. Management knew that digital photography represented a serious threat to their existing business but they neglected the reality of their environment until they lost their competitive advantage.

Another company that suffered the same fate as Kodak is Nokia. Nokia lost its mobile phone market share and was swept away by competition due to strategic drift. It failed to respond to smartphone technology despite having been a dominant global market leader in mobile phones. Nokia should have focused on its customers and thereby identified the changing customer needs. It failed to do so and the market was taken by Apple and Android.

Strategic drift also had an impact on the national telecommunications providers who lost their dominant position in telecoms when they failed to react fast enough to the opportunities brought about by new technologies in mobile telephony. The Post Office has also suffered the same fate due to changes in communication technology with the introduction of emails, SMS messaging and social media.

Companies should watch out current developments in the environment that might render their strategies obsolete. Developments in the social media space has driven and changed the way businesses and customers interact. Customers are now demanding speed in service delivery, excellent service and if service is poor they react to shoddy customer service through social media channels.

Organisations that are failing to have a presence on social media will face the consequences because they will lose customers because they would have failed to interact with customers and thus fail to know their needs and whether as a business it is meeting those needs. A company should have a presence on social media and respond to issues raised by customers before irreparable damage is done.

There are also some disruptive technologies that companies should monitor. Some such disruptive technologies are being used by Uber in travel and by AirBnB in the hospitality industry.
An organisation can avoid strategic drift, by ensuring that as it implements its strategic plan, it remains flexible and can easily adapt to changes in the external environment by aligning an organization’s strategy to the external environment. In this age of disruptive technologies businesses should be able to adapt the business design to changing market conditions.
Another way to avoid strategic drift is for an organisation to allow for diversity of ideas and skills at managerial level so that certain actions of management are questioned. This will stop groupthink which kills diversity of ideas and challenging the status quo. Management should encourage innovation by rewarding innovative ideas. Top management should have a mindset that is open to change.

The third factor that business leaders should do to avoid strategic drift is for management to keep monitoring changes in the external environment with regards to technology, consumption patterns, and industry competition. By conducting regular external analyses, the organisation is able to react timely to new trends in the external environment.
Lastly management should also monitor the performance of the organisation in terms of market share and other financial indicators. A decline in either of these factors might indicate that the

company’s strategy is misaligned with external developments and changes should be put in place to correct the problem.
I urge businesses to monitor whether their strategy is aligned to the external environment so that it does not lose its competitiveness. The environment is changing so fast. Business leaders should keep their pulse on the environment.

l Stewart Jakarasi is a business and financial strategist and a lecturer in business strategy, advanced performance management and entrepreneurship. For assistance in implementing some of the concepts discussed in these articles please contact him on the following contacts: sjakarasi@gmail.com, call on +266 58881062 or WhatsApp +266 62110062. Website: www.shekinaconsult.com.

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