Why Vision and Commitment Can Lead to Failure

Vision and commitment—the same characteristics that define strategy for great business success—are also associated with business failure, according to Michael Raynor, distinguished fellow for Deloitte Research and author of The Strategy Paradox.

“The problem is, how are you supposed to know what to commit to?” Raynor told the student-led Corporate Management and Strategy Group at the Hyde Park Center on April 10. “How are you supposed to know what to have a vision of? Implicitly—and often explicitly—in this particular approach to strategy, the notion is embedded that strategic planners are able to predict the future to some material degree of accuracy.”

Any planner using this strategy can be a victim of that uncertainty, but not because he or she is incompetent or implemented strategies poorly, Raynor said. For example, Sony’s 1974 launch of  the Betamax videocassette has become synonymous with business failure even though the company’s strategic choices were fundamentally reasonable and entirely consistent with the prescriptions of successful strategy, Raynor said.

Sony executives made a commitment to their vision—leading the burgeoning video industry, which meant consumers could use videocassettes to tape television programs so they could watch them later and skip the commercials. Within three years, Betamax failed because film studios began releasing movies on VHS videotape for rental.

“Sony could have taken a much less commitment-intensive approach to rolling out its consumer strategy,” Raynor said. “It could have gone one step at a time, learn as you go. But that would have come at the price of foregoing the opportunity to dominate the market completely.”

To maximize margins, firms typically cope with strategic risk by targeting the extreme positions of cost leadership or product differentiation, he said. Most firms stuck in the middle with smaller margins are generally regarded as stupid, lazy, or greedy for growth, Raynor said.

However, it is possible to get the large margins at “daredevil” firms with less risk, he said. Microsoft, which is regarded as a strategic giant today, grew from a company that in 1988 dabbled in myriad products, including the MS-DOS menu-driven operating system, OSII graphical operating system, Windows, UNIX, and Apple-based applications, Raynor said.

 “Microsoft created a portfolio of what I call strategic options,” he said. “Strategic means an option on an ability to pursue a fundamentally different strategy within a defined market product space. Microsoft’s diversification was not random portfolio diversification in defense of ignorance. They had a very clear sense of where they wanted to compete, but they understood and accepted they had no idea precisely how they were going to compete in that space.”

A solution to this strategical paradox lies in the traditional vertical hierarchy, Raynor said. “Employees at the division level are responsible for competitive strategy, which involves making commitments to how you create and capture value in a product market. But executives responsible for corporate strategy must manage strategic uncertainty. That means identifying the strategic risks that division-level folks are exposed to as the consequence of making commitments, then creating options that mitigate that risk.”

Students in the Corporate Management and Strategy Group said they chose Raynor as a speaker because The Strategy Paradox represents a great innovation in thinking about business strategy, said first-year student Rafael De Leon, co-chairman of the group. “These are breakthrough ideas, and they are a great complement to what we’re learning in class.”

-Phil Rockrohr