The best corporate strategy is usually common sense?

“The best corporate strategy is usually common sense” is an online discussion theme that I recently came across, and which got me thinking.  As I reflected on the statement I thought the best place to start was with a definition of “common sense” which I found in Merriam-Webster Online as:

“. . . beliefs or propositions that most people consider prudent and of sound judgment, without reliance on esoteric knowledge or study or research, but based upon what they see as knowledge held by people "in common" . . . “

Considering the above definition, I find that I have six issues with the statement.

Most people

The definition refers to “most people” and knowledge held by “people in common”. This definition would exclude just about all strategy planning sessions I have been involved with as all the people in the strategy team usually have a level of knowledge about the industry, competitive environment and market vastly superior to “most people.”  However, even if the definition is narrowed to include knowledge held by the strategy team in common, then all strategies, both good and bad, must meet the definition as strategies embarked upon are rarely deemed to lack common sense at the time of formation by those who have developed them.

No reliance on esoteric knowledge or study or research

Most strategy sessions I have been involved with have involved research and a superior of knowledge of the industry which would exclude them from this definition. To undertake a strategy plan without any esoteric knowledge or research, to me would be bound to failure, as was shown but the failure of the GM Nova in Mexico. Surely, a little research by the team would have shown that the name was not going to help the car sell. A great deal of success in many strategies has been tied to a good understanding of the local market, which often requires extensive research.

Ex-ante and ex-post perspectives, or “unknown unknowns”

All strategies are graded in an ex post world.  In the ex-ante world of strategy development, the strategy could be have determined to excellent, well thought out and perfectly executed; however, in the immortal words of Donald Rumseld, “unknown unknowns” occur which cause the strategy to fail. But in the ex-post world of strategy grading, these events are no long unknown unknowns and many are deemed them to be obvious. The benefit of hindsight allows us to question why certain industry changing events or market reactions were not deemed obvious or “common sense” to the team, and the strategy is determined to have lacked common sense. However at the time of formulation, it was based on common sense given the knowledge of the time.

Opposite of Success is not failure

Often the opposite of a successful strategy is believed to be one that fails. However, the characteristics of a successful strategy are those which require more risk in order to generate greater than normal returns. As a result of the increased level of risk, the risk of failure is much higher and thus many successful strategies share the same characteristics as those that fail. However, we all tend to ignore the effect of randomness in life and often the events that cause the “successful” strategy to become a “failed” one are nothing more than “timing”, a slight change in reality from the assumptions or some other externality.

Team Bias

Falling back on the definition of knowledge held by “people in common” this statement reinforces the notion that common sense includes all the biases that we all hold. These biases prevent us from seeing the real risks in the strategy and acknowledging its risk. Biases can be further reinforced by “group” think. Many assumptions are taken as given due to bias, and this cause a strategy based on “common sense” to fail. While it is hard to remove bias from strategy formulation, it is a must in order to succeed and doing so often requires us to face the fact that “common sense” assumptions are not correct.

Execution

While I don’t think execution falls under common sense, many excellently thought out strategies fail due to bad execution. Once more grading the strategy in a ex post world, it is deemed to have failed from lack of common sense, but in reality, it was the lack of execution that resulted in its failure.