Corporations should stop congratulating themselves for reversing strategic decisions under pressure from customers. These reversals don't demonstrate customer responsiveness, they reveal strategic confusion and more seriously, loss of corporate identity
. Netflix's blunder cost it more than $10 billion of market value loss (Techspot, October 25, 2011
). Now Bank of America:
Bank of America Corp reversed course on Tuesday and scrapped plans to charge a $5 per-month debit fee, handing a victory to consumers and protesters angry with big banks, The Chicago Tribune reported yesterday. Bank of America said that the move was in response to customer feedback and competition.
Occasionally, even great companies take chances on a product and the market rejects them. But recently there have been many cases of companies making strategic choices that are simply dumb and when the market rejects them, they boast customer sensitivity and reverse their seriously flawed decisions.
A dumb strategic blunder is when corporations make decisions that are not informed by the essence of the corporation's soul. It happens when a corporation has lost its core identity and begins imitating what works for others as "best practice" but might not be suited to who and what they are.
The identity of a bank for example, must surely be tied to the way it helps people by facilitating financial transactions between them. For this they are entitled to a fee. But when they charge people a fee to draw their own money, money that they have temporarily loaned to the bank probably at no or little interest, then they have lost the plot. This is especially so when the fee is out lof proportion to their cost of managing mass retail electronic transactions.
If Bank of America's leadership would take some soul-searching time out to deeply probe and robustly question the unique reason for its existence (different from all other banks) over and above generating money for shareholders, they would discover the bank's corporate soul. Then, if they aligned their strategies, processes, culture and structure with their corporate soul, they would create a clearly evident and articulated corporate identity that would inform all of their decisions and strategic choices. It is unlikely they would again make decisions that have to be reversed because of customer pressure.
The same applies to Hewlett-Packard
, another company whose chopping and changing of strategic direction indicates the loss of its corporate identity
. Ben Worthen wrote in the WSJ last week
Mr. Apotheker, former CEO of HP, tried to transform HP into a software company, lowered financial targets three times, and went public with his desire to spin out the PC business. He was fired in September. HP's share price fell 40% over the period, even as the tech-heavy Nasdaq Composite Index gained 20% over the same time frame....Now Ms. Whitman said Thursday that HP would keep its $40 billion PC business after all.
The decision whether HP should keep or spin-off its PC business should not be informed by financial targets and customer opinion. It should be informed by whether HP at a soul
level, is a hardware or a software company or something different altogether. Strategic decisions should express a company's essential identity and not be made in a philosophic vacuum. Once the decision is made, leaders need to commit to the course and communicate the decision in the context of the corporation's business philosophy and its true identity. Then financial targets will follow as will customer loyalty. A business attracts customers, it shouldn't need to follow its customers. When companies follow their customers rather than lead them, it might be time to sell their stock and invest in industry leaders instead.
Just look at this piece of strategic confusion at HP reported by Arik Hesseldahl in AllthingsD
on October 29:
We know for certain that HP is out of the business of hardware that runs the operating system it picked up in last year's $1.2 billion acquisition of Palm. HP killed that business after sales of its TouchPad tablet device proved initially disappointing, only to see reduced prices spark a surge in interest from buyers. During a conference call with analysts earlier this week, Whitman conceded that HP needs to be in the tablet business.
It is possible that HP does "need to be in the tablet business." But how did Meg Whitman reach that decision and the other strategic choices she urgently needs to make? Is it because Apple and Samsung are in the tablet business? Is it because customers say they should be? Or has Meg Whitman already discovered the soul of HP and satisfied herself that the tablet is a core feature of HP's corporate identity? The answer to this question of how Whitman makes strategic choices will determine whether HP is headed for more strategic blunders in an effort to chase the numbers and play catch-up with its competition, or whether it will reclaim the position of game changer and industry leader that used to once be at the core of its soul.
To discover what your corporate soul is before you make strategic choices that could be unaligned with it, consider the following three actions:
- Carefully debate who your primary customer is. (Primary customer is the customer set that could gain the most value from your tangible and unique intangible offering. It may not be your biggest or most profitable customer set, but it is the one on which you focus the design of your offering.)
- Generate your capabilities. (Capabilities are the things you can do to make a significant difference to the lives of your customers, using your unique portfolio of strengths, assets, talent and leadership passions).
- Consider how you can wrap your intangible capabilities into your tangible product or service to create a unique value-adding offering for your primary customer.
Now you can examine all strategic dilemmas or opportunities against the framework of the offering you have described: Does the choice you are considering enhance the production and delivery of this offering, or distract you from it? The filtering capability of this process will add a discipline to your thinking that will avoid the otherwise inevitable strategic blunders that corporations make. The resulting focus will clarify who you really are as a company and why your talent should work for you and why your customers should stay loyal to you.