What is Strategic Drift? Strategic drift describes the situation that arises when a company develops strategy in an incremental way and therefore does not keep up with the changing environment. In other words, the environment changes at a faster pace than the company is capable of, as a result of its history and culture.

History and culture are two important elements that can lead to incremental change, which in turn lead to strategic drift. One cannot underestimate the importance of history in shaping a company’s culture. For example, the spirit of the founder or a subsequent charismatic leader can remain a pervasive influence for decades.

Culture, defined by Hofstede as the software of the mind, also expresses itself in companies as organizational culture, defined as the taken-for-granted ways of doing things.

These cultural and historical traditions can be a source of competitive advantage (difficult to copy), but they can at the same time be difficult to change when circumstances require it.

Successful companies are not exempt from this situation, as their past success may itself discourage them from effecting transformational change.

Another cause of incremental change can be familiarity with an industry; managers may have learned to work around a successful formula which in turn means that they don’t move too far from their capability base. Once the company is locked into a strategy of incremental change, other factors come into play and prevent it from keeping up with changes in the environment. These factors are:

• The problem of hindsight. Managers may not find it easy to detect new trends as they are happening, they may consider that they are a passing fad.It may be easy to see major changes with hindsight, but it may not be so easy to see their significance as they are happening.

• Core rigidities. The core competences which themselves have been the basis of competitive advantage for the firm, can become in effect core rigidities because they are embedded in the company and thus difficult to copy. This very reason may make them very difficult to change without major upheaval, or, as some authors call it, without transformational change.

• Relationships become shackles. Success has probably been built on the

basis of excellent relationships with clients, suppliers and staff and it may be extremely difficult not only to identify new opporturnities, but also to ditch clients, change suppliers or turn your back on employees.

• Lagged performance effects. The negative effects of strategic drift may take some time in coming through. The first reaction could be to cut costs and become more efficient, and this can give some short term relief. But in the long run, the company has no future if it is going in the wrong direction, however efficiently.

Examples of Strategic Drift can be shown by two renowned cases. One of them is Motorola during the 90s. This company was founded in 1928 and it was well-known for its constant technological innovation. One of its creations was the two-way walkie-talkie device which was of great help during the Second World War. Later, in 1948, Motorola marketed a television set for a price under US$200. By the 1970s, Motorola was a leader in microprocessors and was considered a world leader in technology. In 1994, the company had 60 per cent of the US mobile telephone market. Motorola’s success was based on technology. It is evident that it was not focused on the market. By the mid-1980s, Motorola was a leader in the manufacture of mobile phones based on analogue technology, and which at the time were heavy and expensive. The target was business managers constantly on the move, for whom it was difficult to use landlines. By 1990s, the company was extremely successful, showing net income growth of 58 per cent a year to reach US$1.8billion. In the meantime, by mid-1990s, digital technology for mobile phones, known as Personal Communication System (PCS), was being developed. It was more secure, experienced less interference and could deal with more subscribers. This technology immediately found a mass market with demand not only from business people but also from a wider consumer market, which was more concerned its easy to use characteristics and attractive appearance. Interestingly, although the company licensed digital technology both to Nokia and Ericsson, it didn’t think digital had a future. Indeed, it launched another analogue model, Star-TAC, and embarked on an aggressive campaign to promote it. By 1998, Motorola’s market share had collapsed to 34 per cent and was forced to lay off 20,000 employees as a consequence. Another example that illustrates catastrophic strategic drift is Encyclopaedia Britannica, created in 1768 by three Scottish printers. Since then it had evolved along fifteen editions and it was well regarded as the most comprehensive encyclopaedia. Later, Britannica grew under American publishers. The quality of this publication was guaranteed by its periodic revisions and constant updating. Market sales were based on an extremely successful worldwide direct sale force. The target was middle-class families and it was focused on their children, with a compelling marketing proposition based on the intellectual quality of the product. By 1990, Britannica had a dominant market share and generous margins but non spectacular market growth. In turn, since the mid-1990’s, Britannica and other printed encyclopaedias in the US had seen their sales fall by over 80 per cent. What had happened? Britannica was blown out of the water by a new product: the CD-ROM. This new product that appeared from nowhere destroyed the printed encyclopaedia business. The most widely known CD-ROM encyclopaedia was Encarta and its cost was incredibly cheaper (US$50 to US$70) than Britannica

which sold at a price of US$1500 to US$2,200 per set. Britannica’s managerial team did not give any relevance to the CD-ROM encyclopaedia thinking that it was a kid’s toy. Mostly in paralell, Microsoft had licensed the text for its encyclopaedia from Funk & Wagnalls, brand perceived as pathetic. The result was that Microsoft dropped its name in favour of Encarta. As revenues collapsed, it became pretty obvious that CD-ROM encyclopaedias were real and serious competitors. Britannica executives rejected the idea of creating their own CD-ROM. Time passed and sales continue to plummet. So the firm’s response was to publish a text-only CD-ROM version which created a sales force revolt, as they feared for their sales commissions, which were bound to be much lower on the CD as compared to the incomes they derived from the printed version. Britannica’s executives thought that a good idea to avert this revolt would be to bundle the CD-ROM as a free bonus for buyers of the famous complete set of printed volumes. This decision gave some peace to the sales team but did not stop the continuing collapse of sales and losses were paramount. Apparently there was no strategy at all. In May 1995, the company was put up for sale. No buyers were came forward. For eighteen months, no one wanted it, but finally, in 1996, a financier agreed to buy it for less than book value. In Britannica’s case, the new economics of information was completely ignored and neglected. Its history and corporate culture blinded its business leaders. As a final thought, the way to avoid strategic drift is for managers to be consciously aware of the corporate culture and be driven by history, not become prisoners of it. Dora Rizzuto

References: Johnson G., Scholes K. & Whittington R.(2008), Exploring Corporate Strategy, Prentice Hall Europe, 8th edition. Evans P. & Wurster T. S. (2000), Blown to Bits – How the New Economics of Information Transform Strategy, Harvard Business School.