The 5 Worst Business Strategies I've Ever Seen
by Tom Wright, on Feb 22, 2017 12:23:23 PM
I wrote an article a few months ago about the best business strategies I've ever seen. Today, I wanted to explore the flip side of that coin - the worst business strategies I've ever seen. More importantly, I want to explore what we can learn from those business strategies and how we can convert that learning into improvements to our own strategic plans.
A quick caveat - for each of the worst business strategies outlined below, there are actually a ton of reasons behind the scenes that contributed to them not working out. I've picked out what I think the biggest offender was, and outlined it for each. Also - many of these companies are super-successful and have achieved lots of other awesome things. This isn't a criticism of them as companies, just of the particular business strategies I've picked out as being some of the worst I've seen ;)
1. Electronic Arts is Named Worst Company in America. Twice.
In-case you haven't heard of them - EA are pretty much the world's biggest publisher of computer games, famous for titles such as the 'Fifa' and 'Battlefield' games series. They've also had the dubious honor of being named the worst company in America twice in a row by the consumers voting in a Consumerist poll.
The reasons cited for this terrible bit of PR were that:
EA has failed at three "core requirements" of running a consumer-friendly business. These are: provide a product that people want and like, sell your product at a reasonable price, and support the products you sell.
The company's customer base saw EA as a greedy money-making machine - focused more on driving margins than creating good quality products. This was backed up when a number of company insiders spoke anonymously to the press about EA's corporate strategy at the time (the first 'award' was in 2013). The company was under immense pressure from shareholders to grow financial returns, but the more focused EA became on growing profits, the more sales continued to dwindle:
What can we learn from EA?
One of the things we often see in strategic plans is a focus area around driving profit. This is something that I have a bit of a problem with. It's generally accepted that one of the core purposes of a company is to make profit. But profit itself should rarely be a focus. Rather, the things that drive profit should be the things on which your strategic plan is focused. For example, for EA their focus areas should have been something like:
- Create awesome games
- Deliver exceptional customer service
- Drive innovation in the industry
Profit would have been a by-product of them delivering on these things. But according to the insiders - the core of their strategic plan at the time looked more like:
- Increase life-time value of games by xx%
- Explore additional revenue streams from digital media
- Capitalize on the explosion of mobile gaming
Definitely one of the worst business strategies I've seen. Here's why: Creating a 'profit first' culture shows a lack of imagination in strategic planning. Yes, it's the role of the business leader to drive ever-increasing financial returns. But it's also his/her role to translate this outcome into positive focus areas that employees can get behind, and that go beyond pure financial metrics.
2. Kodak Decides to Press Pause on Digital Cameras
This is probably the most well-known of the world's worst business strategies. Yep - this is the story of how Kodak invented the digital camera, only to then decide not to launch one until over 15 years later!
In 1975, Steve Sasson created the world's first digital camera at the Kodak HQ in New York. It was a 0.1 Megapixel beast that was around the size of a toaster. It was also utterly revolutionary and would change the face of photography for ever. The team at Kodak were smart - and they knew just how big of a deal this was. So they invested millions of dollars into getting digital cameras into production. A few years later, they were all set to launch the world's first commercially available digital camera - until members of the senior management team put a stop to the whole endeavor.
Why? Because they were worried about hurting the performance of their film division - which relied on selling single-use rolls of films to customers with non-digital camera devices. Even when they were told that they had at most, 10 years until digital would completely displace film - they continued to resist in order to ensure that they met their own short term financial KPIs.
What can we learn from Kodak?
Plenty of postmortems have been performed on Kodak's demise and how it implemented one of the world's worst business strategies. What most of them agree on, is that key executives at the time were working far more towards short term profit goals than towards long term viability of the business.
Even though film sales were declining - the executives did a great job of managing the expectations of their shareholders down, so that bonuses were still being regularly paid out, even as sales continued to decline.
One of the models we often suggest to our clients to avoid this scenario, is to implement something like the McKinsey's Strategic Horizon model as part of your strategic plan. This model forces you to balance your goals between the 3 horizons of:
- 1: Revenue from business as usual (around 70% of your effort)
- 2: Focus on broadening your revenue streams (around 20 of your effort)
- 3: Focus on exploring entirely new revenue streams (around 10% of your effort)
Whilst this model might not have saved Kodak - it would at least have highlighted how little focus was being put on revenue streams beyond that of their traditional film business. Take a look at our guide to the best strategy frameworks for more information about McKinsey's Strategic Horizons.
3. Kmart's Identity Crisis is Costing it Big-time
The 'big 3' of discount high street retailers in the US is made up of Walmart, Target, and Kmart (now owned by Sears). Usually, when you have this type of oligopoly, their fates tend to follow similar paths based on industry trends. That is, until one party starts to make mistakes:
Sales and footfall have been on a steady decline since around 2000, with revenue declined to match. Analysis has shown a direct move of shoppers from Kmart to their arch-enemies Walmart and Target. In 2012, 10% of all Kmart stores were closed in one-fell swoop. The biggest criticism of Kmart and why it had one of the worst business strategies is because of its lack of focus. Whilst Walmart is focused on 'always lowest prices' and Target is focused on 'cheap-chic clothing styles' - Kmart's vision statement at the peak of their problems read like this:
"To thrive as a mass merchandising company that offers customers quality products through a portfolio of exclusive brands and labels."
Huh? That vision statement could apply to just about any retailer on the planet!
What can we learn from Kmart?
Focus is probably the single biggest reason why you need to create a strategic plan. It helps you to channel your (limited) resources into a cohesive effort that everyone understands and can get behind. But when your vision statement is as generic as Kmart's was - what chance do you have of bringing the focus needed to compete with juggernauts such as Walmart?
In addition to creating a great vision statement for your business, you might also want to implement a model such as the Value Disciplines approach. This model is about helping you to focus your business onto one key discipline from the following list:
- Operational Excellence
- Customer Intimacy
- Product Leadership
Kmart's friends at Walmart are probably the world's leading example of a company that is nailing Operational Excellence. Target have proved through their in-touch fashion lines that they have great Customer Intimacy. Kmart on the other hand, had none of these things. Check out our guide to implementing Value Disciplines and other frameworks for more information.
4. Blackberry Fails to Realize that B2B Involves Actual Humans
In June 2008, Blackberry's shares sat at a healthy $144. Just 5 years later - they had sunk to a new record low of just $6.50. That epic fall is the result of another of the world's worst business strategies...
I remember my first Blackberry quite fondly. I was working at Bank of America, and received a shiny new monochrome screened Blackberry as part of a job promotion. Within a couple of weeks, I was firing off emails at the speed of light from anywhere and everywhere. I'd become one of the many employees whose productivity had been boosted 20% through the simple act of issuing them a mobile device. So how did it all go so wrong for a company responsible for such a momentous shift in workplace productivity...
The single biggest problem faced by Blackberry was that people simply didn't want to use their phones anymore. Businesses themselves wanted to buy them - because they offered superior security and fewer distractions such as games than say an iPhone. But the resistance from actual users inside those companies was huge - with an overwhelming clamor for iPhones and Androids. One-by-one, IT departments began to cave, and allowed users to switch to devices of their own choosing.
Blackberry tried a few things to mitigate the slow down in corporate sales, such as attacking the consumer space and implementing iPhone-esque designs and features. But it was too little too late. 6 months ago, Blackberry revealed the details of its last ever homegrown smartphone.
What can we learn from Blackberry?
Ok, so this is a topic that's actually pretty close to my heart - and for me it comes down to the way that people think about B2B (business-to-business) vs B2C (business-to-consumer). Blackberry's revenues were firmly entrenched in the B2B business model. They sold to corporations who then issued phones to their users.
So....who was Blackberry's customer in this case? Was it the corporations buying the phones or the users using them? Ultimately the people who made the decision to stop using Blackberry phones were the users. Yet Blackberry's entire pitch was geared towards the corporations. They resisted user trends such as touch screens and mobile games because businesses didn't seem to want these things. But in doing so they overlooked the fact that ultimately, end-users would be the ones that would decide their fate.
We see this same pattern in a lot of enterprise SaaS software. How often have you found yourself one minute using an awesomely designed consumer product (Gmail, LinkedIn, etc) to the next minute logging on to your work computer and having to use a bit of crappy old-school software such as your company's CRM or HR system? By the way, I can tell you that the cost of that crappy enterprise software was many many times the cost of the awesome consumer software.
This happens because many companies think they get away with bad user experience in B2B products. That businesses are too lazy to notice or just don't care enough about their users. But this is changing fast. The expectations that businesses have around the enterprise products they buy is increasing rapidly. That's why you're seeing more and more corporate use of platforms like Slack and Asana - and the demise of products like Blackberry.
To sum up why this is one of the worst business strategies - think deeply about who your customer actually is, and build a product for them - not just the middle-man you happen to be selling to.
5. McDonald's Salads Fail to Sell. And They Make you Fat.
Under increasing pressure from regulatory bodies about the high fat content of their menu - McDonald's in 2005 decided to launch their 'healthy' salad range. On the face of it, this seemed like a pretty good idea. Healthy living was becoming an increasingly prominent topic, and McDonald's wanted to capitalize on their powerful brand to cash-in.
But the salads didn't sell. Since their launch in 2005, they've only now managed to make it up to being around 2% of McDonald's' overall sales revenue. So, what did they do about it?
Consumer focus groups showed that McDonald's customers simply didn't enjoy the taste of the salads as much as they did the traditional burgers and fries. The psychology the focus groups unearthed went something along the lines of:
I've decided to go to McDonald's because I'm hungry and I want something tasty and satisfying. I'm unlikely to change my mind when I get there and buy a salad instead.
So McDonald's started to innovate on the flavors of their salads - adding dressings, sauces and things like fried chicken. Sales increased a little bit, to around 3%, but quickly stalled until eventually CEO Don Thompson admitted to investors that salads would likely never be a major source of revenue for the fast food chain.
Furthermore, it emerged that McDonald's range of salads was actually worse for you health-wise than their traditional fast-food menu. Leaving everyone scratching their head and asking the question: 'so why did they even bother??!'
What can we learn from McDonalds?
There are a a couple of different learnings we can take from the McDonald's salad adventure, one of its worst business strategies. The first is simply the fact that as a general rule - companies should decide on what their core competencies are, and stick to them. But we kind of already covered that angle in the Kmart example above, so let's instead look at a different aspect of why this is one of the worst business strategies in recent times.
Whenever you embark on a new strategy - you need to clearly articulate why you're doing it, and what problem you're trying to solve. This shared vision needs to be so well embedded in the strategy that the people involved can recite it easily and quickly, and that it permeates everything around the execution of that strategy.
The McDonald's strategy with salads started off as trying to mitigate reputational risk. Then it changed to trying to drive extra revenue. That's fine - strategies are meant to evolve. But the problem is that in moving towards making extra revenue - they forgot entirely about the original reason that they launched salads in the first place! And thus, they've come full circle and are once again defending themselves about how unhealthy their menus are - only the products they're defending are the very ones they introduced to try to solve this problem in the first place!
What are the Worst Business Strategies You've Ever Seen?
OK, so that's my top 5. Once again - now it's your turn. Tell me about the worst business strategies you've come across. The ones that made you smile and say 'damn they were dumb'. Add your own to the comments below, or share them with me via social media.
Over to you!