An organisation may gradually lose touch with its environment and become unable to perceive customers’ evolving needs and preferences. The process in which the organisation becomes increasingly distanced from its customers and the business environment is called strategic drift.
The image above is a visual representation of the organisation losing touch with changing customer needs on the vertical axis, manifesting over time on the horizontal axis.
Current success adds a layer of complacency or arrogance to repeat the organisational routines that have worked well in the past. When the organisation gets good results from generating cash in a particular way, it tends to persist with set routines until they become overused. Then, over time within the organisation, a perception is built that it is risky, difficult or impossible to adopt new operational routines for growth.
In phase 1, these are initial periods when the firm pivots its strategy to keep pace with changes in the business environment. However, in phase 2, the gap between changes in the environmental and current strategy markedly expands and leads to flux in phase 3. This phase is characterised by management indecision. There is now a significant gap between operations and market needs. Management may have recognised this gap and begun to alter the strategy; however, there is no real improvement in the performance of the organisation.
There may be political disagreement between stakeholders about how to address what is now a significant strategic drift. The quality of decisions and strategic analysis in the flux phase will determine whether the company goes bust or makes the needed radical changes to enter into a new phase of transformational change.
Strategic drift happens gradually as managers reject new ideas as deviant or contrary to the norm for reasons including bounded rationality, defined in Week 1, as the making of constrained decisions. New ideas may, in fact, be contrarian but duly reflect changing customer needs and the business environment.
Strategic drift is a very handy tool to reflect and reality-check the danger of bounded rationality. In business, great success often precedes great decline.
Have a look at the FTSE 100 or the S&P 500 index over the last decade to appreciate how many world-leading companies have lost their way. The turnover is startling. Companies lose their sense of urgency and become blind to opportunities and threats in the environment until performance declines to a level that is only redeemable by dramatic restructuring.
In the smartphone business, Nokia and Blackberry spring to mind as casualties of this success trap. What can be done to avoid strategic drift? Managers must lose their sense of superiority and define new goals, nurture diversity throughout the organisation and be alert to signals within and outside the organisation.
Professor Daniel Miller has written a very interesting book about how exceptional companies bring about their own downfall. The title is The Icarus Paradox and details are provided in the further reading, below, if you want to read more about the strategic drift phenomenon.
Miller, D. (1990) The Icarus Paradox. New York: Harper Collins
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