Myths of Strategy summary

It’s becoming more and more difficult to predict product success. To understand this problem, researchers conducted an experiment. They created a website called Music Lab. Participants could listen to and download 48 unknown songs and rate them. There were 14,000 participants. In the experiment, the researchers divided the group into nine worlds. In eight of the worlds, participants could see each other’s ratings and downloads. In one of the worlds – called the independent world – the ratings and downloads weren’t visible.

What the researchers found was that there was very little rhyme or reason to what put a song in first place – or fortieth. In fact, in one case, the independent world rated a song at 28, when that same song was first in one world and fortieth in another. In essence, what the researchers found was that social influence, or luck, has so much to do with success that talent alone can’t overcome it.

Back in 2002, car company General Motors was sitting at 28.2 percent market share. They wanted to reach 29 percent, so they heavily discounted their vehicles. They reached their target, but they lost money every time they sold a car.

In 2013, Wells Fargo had a strategy to better align their cross-sales metrics with their big-picture strategy of long-term relationships with their banking customers. The strategy was good, but they translated it into a goal – upsell eight services to current clients. Furthermore, they incentivized the goal with bonuses. As a result, employees engaged in unethical practices of “selling” services to customers without customer knowledge.

Many entrepreneurs are led to believe that their best option is to pick a flourishing sector and enact one of two strategies: beating the competitors on price and beating the competitors on quality. 

There are a couple of problems with this advice. One is that flourishing sectors have high competition. So if your company doesn’t have a competitive advantage one way or the other, it’s probably not reasonable to expect to go into that sector and dominate. 

Ask anyone what led to Apple’s success as a company, and most people will mention the design or innovation, or maybe the marketing. However, not all of Apple’s products succeeded. The iPod and iPhone are undeniably dominant, but the Mac never achieved much beyond 10 percent market share.

Nobody disputes the quality and performance of the Mac, so instead of looking at why it hasn’t achieved the same success as the iPhone, let’s look at why the iPhone took the world by storm.

In a study in the Journal of Applied Psychology, managers were presented with four scenarios involving a CEO. (1) The CEO stuck with a strategy and succeeded. (2) The CEO tried several strategies and succeeded. (3) The CEO stuck with a strategy and failed. (4) The CEO tried several strategies and failed. 

The managers were asked to rate the CEOs from the scenarios. Naturally, the winners ranked higher. But the winner who ranked the highest was the one who stuck with a single strategy and succeeded. Oddly enough, there were several cases in which the CEO who stuck with one strategy and failed ranked higher than the one who tried several strategies and succeeded.