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How to recognize strategic errors in your business

Business and management consultant, author of the book Maverick Leadership.

Decisions involving strategies, tactics and operations are all different things, and knowing how they differ is important to running a business. Younger managers and entrepreneurs in particular often confuse them, especially strategies and tactics.

While strategic decisions are key to a healthy business, errors in strategy can be fatal because they deal with the direction the business is going. You could be driving a Ferrari or a Porsche, but if you are heading in the wrong direction the car doesn't matter because you won't reach your destination. Errors in strategy often take a long time to fix and usually require time, money and resources to repair. They affect the long term.

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Tactics, on the other hand, deal with the execution of the strategy and are also key, but provide more breathing room. Tactical errors usually require less time to fix – they are more focused on the short term – but they can still represent a waste of valuable time and energy.

Finally, decisions concerning operations are about the day-to-day management of the business. Errors in operations are relatively easy to correct, and while they can be frustrating and distracting, sometimes they are unavoidable.

If you are thinking about expanding the business nationwide or want to continue in only one particular area, then that is a strategic decision. But opening up new offices in other cities, or maybe partnering with another company, is a tactical decision.

How about operations? An operational decision would be something like this: one of your best customers just experienced a late delivery, so you decide to give them free shipment as a form of compensation. Or you offer a discount of 10 per cent on their next order to protect customer goodwill.

There are ways to test one's understanding of strategy, tactics and operations, and a good method is the military analogy.

Let's assume you are an army general in charge of an airborne division, and the mission is to drop paratroopers behind enemy lines in a strategic location. The outcome of the war hangs in the balance.

Research and reconnaissance work on the terrain reveals vital information about the enemy's location and firepower. There is a river, a forest and open fields. Obviously, you don't want to drop the paratroopers in the river or the forest, but dropping them in the open fields will make them visible and vulnerable to the enemy.

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What do you do?

It is a strategic decision to drop the paratroopers, so you decide to do it at night and aim for the open fields. You include extra uniforms and waterproof gear in case some troops land in the water. You also equip the troops with extra ropes should anyone land in the forest. In addition, you may use dummy paratroopers to fake the landing a few kilometres away and distract your enemy away from the open fields. This sounds like a good plan considering the overall complexity and importance of the mission.

The dropping of the paratroopers is the overall strategy, but the tactics involve secondary decisions – i.e., avoiding the forest and the river, choosing night time, designing the diversion tactic.

Then comes operations. These decisions include the extra uniforms, choice of accessories, waterproof gear, ropes, etc.

See the difference? Anyone who is running a business should be able to recognize strategic errors at the outset or the business may suffer.

So strategy is tied to the overall direction and represents the main highway taken to reach the ultimate destination. Tactics are the tools used to carry on the strategy, and operations involve specific choices of ingredients used to get there.

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Learning to differentiate among these three types of decisions may well determine business success. In particular, recognizing strategic decisions and knowing when to fix strategic errors is critical and not always easy to do. Fixing strategic errors is like making a U-turn: it sets you back time-wise, since you must reinvent your way and change direction.

When IBM missed the introduction of the personal computer, it took the company a long time to regain its leadership position. The same thing happened to Microsoft when it underestimated the importance of the search engine, giving Google a head start for Internet advertising. Other companies such as Kodak and Xerox completely missed key changes in the market, or underestimated competitive threats that set them back.

These were all strategic errors. Recognizing them early and changing course can be the difference between success and failure.

Executives, educators and human resources experts contribute to the ongoing Leadership Lab series.

Video: Talking Management: The role of the board when developing corporate strategy (Special to Globe and Mail Update)
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