The Anatomy of Fatal Business Strategy By Erhard K Valentin

Introduction The Problem: Boise Cascade – Building material Division Failure From 24 to 120 outlets in 1970-1972 but by 1982 all outlets were closed Method: Participant – Observer Approach

Conceptual Underpinnings Business failure can be analyzed from: Strategic Angel: Which decisions were wrong Behavioral Angel: How and why they were wrong

The Behavioral Perspective Decisions and strategies are developed and used according to the perceptions of those who make them Business may fail not because of lack of resources but because of human limitations in seeing strategic problems and in effective strategy development and implementation. This could be explained through:

The Behavioral Perspective (Continuo…) Information processing Because human information processing is bounded people rely on: Heuristics: Reasoning by analogy Wishful thinking Availability Vividness Simulation Confirmation

The Behavioral Perspective (Continuo…) Group dynamics and organizational culture Interactions among individuals in groups tend to either exclude biases or intensifying them In a cohesive culture the tunnel vision emerges (control and inertia). This comes from group members experiences and prospective.

The Behavioral Perspective (Continuo…) The structure of management Decision making: Because rationality is bounded executions reduce the realm of possibility to partially evaluated ranked alternatives. This sores them from exhausting research in scenarios. Then, one alternative will emerge while decisions are shaped by political/cultural considerations they come normally expressed in rational analytical terms.

A behavioral framework for studying organizational phenomena Physical systems, distinctive competencies, beliefs, interests, and power structure are roots helping firms to prosper but in long-term they prevent organizations from responding to environment change.

The rise & fall of BMD A descriptive contextual account The origin and evolution and Boise cascade aggressive expansion through acquisition and diversification Financial criteria of success was used rather than market position and strategy

The rise & fall of BMD …(Continuo) A descriptive contextual account The origin of helmsmen Successful, fair, tough, earthy and practical Corporate retrenchment and expansion Recession of the economy and lumber and paper business focus. Vertical integration under consultancy Dual expansion plan Targeting DIY segment and contractors

The rise & fall of BMD …(Continuo) A descriptive contextual account Consultant Recommendation Dual service outlets Expansion program based on DIY business Hire a retailing manager for contractor outlets Uniformity among outlets Retailing IS

Implementation Sectional = Housing was slow Organizational = decentralization vs. Centralization Recruitment of retail manager with neither power nor mobility The Decline of BMD

Diagnosis External Forces: Weaknesses: compared with competition: Market Fall Serious competition Maturity of PLC Weaknesses: compared with competition: Too many poor sites Lack of standardization in store size No dominance in metro areas Decentralization Inadequate IS

Behavioral process in context Weak assumptions about customer behavior (DIY) Rising managerial aspiration and clear scenarios blinded decision makers Information was used to support assumptions Outlets bought were not located in effective sites both for market and supply

Behavioral process in context…(Continuo) Market share was not an objective Forces of decentralization tried to fail centralization of standardization DIY need different brains No or slow IS

Conclusion Past successes and ideological rigidity can faster dysfunctional inertia and mindsets. Group builds value of membership against wisdom. Later they discover that traditional strategic recipes are no longer viable. In this case instead if changing organization and hiring retail experts BMD relied on existing organization and brains ( experience was in selling to contractors no DIY experience)