Cautionary Tales in Strategy
Why do great companies fail? Explore strategy through the competing lenses of Michael Porter's analysis and Henry Mintzberg's emergent view.
Fallen Giants: Cautionary Tales
Let's start by looking at companies that once dominated but failed to adapt. What went wrong?
1. Nokia: Connecting People... Then Disconnecting
How did the undisputed king of mobile phones lose its crown almost overnight?
Nokia's operational excellence in hardware manufacturing built a global empire. But when Apple's iPhone (2007) and Google's Android (2008) shifted the battleground to software ecosystems and user experience, Nokia faltered.
Peak:
Dominated with >40% global market share via superior hardware & operational efficiency.
Downfall:
Dismissed iPhone/Android, clung to aging Symbian OS, failed pivot with Microsoft Windows Phone.
Porter's Lens:
Confused Operational Effectiveness (great hardware) with Strategy. Lacked a unique position when the game shifted to software ecosystems. Failed analysis of substitutes (smartphones replacing feature phones).
Mintzberg's Lens:
Rigid deliberate strategy (hardware focus) stifled internal emergent ideas (touchscreens, app stores developed internally years prior). Organization forgot how to learn and adapt its 'craft', ignoring warnings from engineers.
Global Smartphone Market Share (%)
2. Kodak: Blinded by Success
How could the company that invented digital photography be bankrupted by it?
Kodak's 'razor-and-blades' model (cheap cameras, profitable film/printing) was a masterpiece of strategic 'fit' in the 20th century. But this very success blinded them to the digital disruption they pioneered in 1975.
Peak:
Mastery of 'fit' with razor-and-blades model. Market cap $28B (1996).
Downfall:
Feared cannibalizing film, suppressed own digital invention, half-hearted pivot focused on printing, bankruptcy (2012).
Porter's Lens:
Unwillingness to make the crucial trade-off: sacrifice highly profitable film for uncertain digital. Tried to straddle both (focusing digital efforts on printing photos), creating no clear position or reinforcing 'fit' in the new digital imaging world. Failed to properly assess the power of the digital substitute.
Mintzberg's Lens:
The powerful, established deliberate strategy (protect film) actively killed the brilliant emergent strategy (the digital camera born in its own labs). The formal planning process and culture were too rigid, crushing organizational learning and the ability to 'craft' a new future.
Market Capitalization ($ Billions)
3. Yahoo!: Lost in Translation
Why did the internet's original directory fail to navigate the rise of search and social media?
Yahoo was the gateway for millions in the early internet era. However, missed opportunities (failing to buy Google and Facebook), strategic indecision between being a media vs. tech company, and constant leadership changes led to its decline.
Peak:
The web's front door, human-curated directory, market cap >$125B (2000).
Downfall:
Missed Google/Facebook buys, unclear identity (media vs tech), leadership churn, acquired assets mismanaged (Flickr, Tumblr), sold core business for <$5B (2017).
Porter's Lens:
'Stuck in the middle' - tried to be everything (portal, media, search, tech) with no clear, unique position. Failed to make necessary trade-offs. Acquired assets (Flickr, Tumblr) didn't create reinforcing 'fit' with the core portal strategy.
Mintzberg's Lens:
Strategy was chaotic, not crafted or emergent. Constant CEO changes imposed disjointed deliberate strategies (the 'peanut butter manifesto' era vs. Marissa Mayer's tech focus). Internal conflicts (media vs. tech) prevented any coherent pattern from emerging or organizational learning to occur.
Market Capitalization ($ Billions)
Understanding the Frameworks: The Two Lenses
Now that we've seen the consequences, let's formally define the two strategic perspectives we used for analysis.
1. The "Design" Lens: Michael Porter
Porter views strategy as a deliberate, analytical process of positioning. Analyze the industry structure (Five Forces), choose a unique, defensible position (Cost Leadership, Differentiation, Focus), and build a reinforcing system of activities ('fit'). The key is making trade-offs – choosing what not to do.
Key Concepts:
- Operational Effectiveness vs. Strategy
- Unique Value Proposition (Needs, Variety, Access)
- Trade-offs & Fit
- Five Forces Analysis
2. The "Emergent" Lens: Henry Mintzberg
Mintzberg pushes back, arguing that real strategy often isn't a grand plan but emerges organically. It's 'crafted' through learning, adaptation, and patterns forming from daily actions. Formulation and implementation are intertwined, like a potter shaping clay.
Key Concepts:
- Intended vs. Realized Strategy
- Deliberate vs. Emergent Components
- Strategy as Craft (Learning by Doing)
- Grassroots Strategy Formation
Porter's Strategic Positions: Examples
Porter identified three distinct sources from which a strategic position can emerge: needs, variety, or access. Let's see them in action.
1. Needs-Based Positioning
Serving most or all needs of a particular customer group.
🇮🇳 Urban Company
Need: Reliable, quality home/personal care for busy urbanites.
Solution: Vetted partners via platform.
Position: Trusted one-stop-shop.
🌍 Netflix
Need: On-demand, personalized, ad-free entertainment.
Solution: Subscription library + recommendations.
Position: Ultimate personalized entertainment.
2. Variety-Based Positioning
Producing a subset of an industry's products or services.
🇮🇳 Rebel Foods
Variety: >45 distinct food brands (Faasos, etc.) from cloud kitchens.
Solution: Tech platform manages multiple brands efficiently.
Position: Go-to for any food craving (delivered).
🌍 Zara
Variety: Constantly rotating "fast fashion" trends.
Solution: Agile supply chain delivers new styles weekly.
Position: Affordable, endless fashion variety.
3. Access-Based Positioning
Segmenting customers accessible in different ways.
🇮🇳 Reliance Jio
Access Barrier: Lack of affordable internet in rural/low-income India.
Solution: Free 4G trials, cheap phone, nationwide network.
Position: Enabler of digital inclusion.
🌍 Allegiant Air
Access Barrier: No direct, cheap flights from small US cities.
Solution: Low-cost model using secondary airports.
Position: Affordable flights for underserved cities.
How to Differentiate the Positions
The three positions differ primarily in their starting point or focus, dictating how activities are structured.
| Characteristic | Needs-Based | Variety-Based | Access-Based |
|---|---|---|---|
| Primary Focus | Specific customer group | Subset of products/services | Unique customer accessibility |
| Segmentation | Customer needs/profile | Product/service itself | Geography, scale, channel |
| Target Market | Narrow segment, all needs | Wide market, specific offering | Hard-to-reach customers |
| Starting Question | "**Who** is our target customer?" | "**What** product can we excel at?" | "**How** can we reach them uniquely?" |
Porter's Concept of Fit: Reinforcing Activities
"Fit" is how a company's activities interact and reinforce one another, making strategy sustainable and hard to copy. Porter identifies three levels.
1. First-Order Fit (Simple Consistency)
Basic alignment: each activity is consistent with the overall strategy.
🌍 McDonald's
Strategy: Quick, affordable, consistent fast food.
Consistency: Standardized menu, store layout, drive-thru, operating procedures all reinforce speed and low cost.
🇮🇳 Nirma
Strategy: Low-cost, mass-market detergent.
Consistency: Cost focus in manufacturing, rural distribution, low-price ads, simple packaging all align with the low-cost position.
2. Second-Order Fit (Reinforcing Activities)
Activities actively reinforce one another; the whole > sum of parts.
🌍 Southwest Airlines
Strategy: Low-cost, convenient, point-to-point travel.
Reinforcement: Single plane type simplifies maintenance/training -> quick turnarounds -> high utilization -> low fares.
🇮🇳 Titan Company (Early Days)
Strategy: High-quality, aspirational watch brand.
Reinforcement: Stylish design + exclusive 'World of Titan' retail experience + quality after-sales service = reinforced premium brand image.
3. Third-Order Fit (Optimization of Effort)
Coordination across activities eliminates redundancy and waste.
🌍 IKEA
Strategy: Stylish, affordable, self-assembly furniture.
Optimization: Modular design -> flat-packing -> efficient logistics + customer self-service/transport/assembly = optimized low-cost system.
🇮🇳 Asian Paints
Strategy: Market leadership via superior supply chain.
Optimization: Advanced demand forecasting + small-batch production + frequent dealer deliveries + in-store tinting = minimized inventory/waste.
Comparison of Fit Types
| Feature | First-Order Fit | Second-Order Fit | Third-Order Fit |
|---|---|---|---|
| Definition | Each activity consistent | Activities reinforce each other | Activities optimized across system |
| Purpose | Alignment | Synergy (Whole > Sum) | Max efficiency, eliminate waste |
| Analogy | Puzzle pieces fit edges | Intertwined chain links | Optimized, interlocked puzzle |
| Imitability | Easy (copy activity) | Hard (copy system) | Extremely difficult (copy coordination) |
Strategy Workshop & Simulation
Apply what you've learned. Make the strategic calls and see the consequences.
Workshop 1: The "Blockbuster" Dilemma
Imagine you are the CEO of 'VideoBarn', the dominant video rental chain in 2005. A small startup called 'Netflix' is mailing DVDs and has started talking about "streaming." What is your strategic move?
Workshop 2: The Digital News Dilemma
You run a successful regional newspaper with high local readership and ad revenue (circa 2008). Online news sites are gaining traction, often giving away content for free. What's your move?
Quick Decision: The Trade-off Challenge
Your budget airline is known for rock-bottom fares. A consultant suggests adding free checked bags and snacks like major carriers to attract more customers. According to Porter, should you do it?
Simulation: Launching "Phoenix Motors" (Expanded)
You are launching a new electric car company in a market dominated by legacy automakers. You have limited capital. Choose your path step-by-step.
Knowledge Check
Test your understanding of the core strategic concepts.