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The Strategic Mistake of Overestimating Your Own Capabilities

Blind Spot Mirror on Rear View Mirror

A common strategic planning mistake that people make is overestimating their own capabilities. It’s easy to overestimate your organization’s capabilities because we tend to have a favorable view of how good we are. We also have blind spots related to weaknesses that we might have.

Think about how many market leading companies you’ve seen fail. The belief that they were better than others is often the root cause of this failure. Viewing your organization as superior to competitors can lead to a flawed strategy.

I worked with one startup who came in and said “We’re the best in the market. Here’s why our technology’s better. Here’s why our strategy’s better. Here’s why our people are better.”

The investors challenged them on that assessment and the company still maintained their position of why the investor’s concerns weren’t relevant and why their competitor wasn’t as good as they were. Eventually they were blindsided in the marketplace and they went under. They seriously overestimated their capabilities.

Some warning signs that you may be overestimating your capabilities include things like:

– people saying “Oh we have no competitors. We’re the only one in this market.” Everyone has competitors. That’s a huge blind spot to say you don’t have any.

– using your old SWOT analysis versus doing a new one where you’re more rigorous around what your strengths, weaknesses, opportunities and threats are.

– relying on internal market research versus going to an external objective third party. That internal research can be very biased.

Some fixes for these risks are:

– Seek objective sources of capability assessments. Go out and get some consultants. Bring those people in to look at your business. Find some advisors or members of your board of directors to give you an objective assessment of what your strengths and weaknesses are.

– Conduct a good rigorous Porter’s Five Forces analysis to assess competitive dynamics in your industry.

– Focus on the weaknesses section of your SWOT analysis. By the way, ask your customers and your suppliers what your strengths and weaknesses are. They’re going to uncover some blind spots you’re not aware of.

Having an accurate realistic understanding of your capabilities keeps you from getting blindsided from by someone who’s better than you are. Take the time to get objective perspectives and make sure you’re protecting yourself from the risk of overestimating your capabilities.

Misreading the Market

Markets are complex. There are multiple players in your market who are dealing with players in other markets. You have to think about the market you’re competing in as well as the markets of your customers and your suppliers.

It’s easy to misread the market. Doing so can lead to the pursuit of the wrong strategy. Do a good market assessment for your market, your customers’ markets, and your suppliers’ markets. Refresh those assessments regularly to keep your strategy aligned with changes in the marketplace.

I know one electronics retailer that completely misread the market. They were focused on building physical stores and they said “we want to have an assortment where anything you need if you come into our store we have it.”

The result was they had very slow moving inventory in terms of their assortment. They also didn’t push for a big online presence as hard as they needed to. What happened was the online channel became dominant. The online channel was able to beat them both in terms of the assortment that was available and the price that customers could get it for.

The retail stores became non-cost competitive. They couldn’t compete with the prices or the assortment online. This organization missed that their customers’ market had shifted. They customers had moved from going to a retail store to just clicking their mouse at home and getting the product shipped to them. The result was this organization went bankrupt. They completely misread the dynamics in their marketplace.

To avoid the failed retailer’s fate, conduct a rigorous Porter’s Five Forces analysis. Do that analysis for your business and your market first. Then do the analysis from your customers’ perspective. What’s your customer’s market look like, what are the dynamics there?

Also conduct a Porter’s Five Forces analysis for your major suppliers. You want to know if your suppliers are facing any major risks. You need to know if a supplier is at risk of going under well in advance of that happening. If you know that, then you can make the appropriate actions today to contingency plan for that problem in the future.

Once you’ve done these analyses, go out and validate them with your customers and your suppliers. If you’ve got close partnerships, invite those groups in to do this analysis with you. It’ll make the analysis more accurate and enable you to put in place the right contingency plans. Don’t misread your market. Invest the time in having solid competitive intelligence about what’s going in the marketplace so you can build an appropriate strategic plan to succeed in that environment.

Combining the Inside and Outside Views

Being rigorous about assessing your own capabilities and understanding the markets that can affect your business can prevent nasty surprises from creeping up on you. There’s no shortage of information available to help you with these analyses. Your big challenge is making the time to conduct these analyses thoroughly.

You might say “Mike, I don’t have the time to do all that analysis. I’m too busy running my business!” If that’s your answer, I’ll gently point out you’ll have all the time in the world to do this analysis when your business goes under and you’re unemployed because you didn’t properly assess the market and how it was going to affect you. Make the time. It’s worth it.

Want to learn more about strategic planning? How about taking an entire course on it? Check out the video below to learn more about how to get started. You can also go directly to the course and start learning right now. The entire course is available at lynda.com. Enjoy!

Mike Figliuolo at thoughtLEADERS, LLC

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Photo: only the blind spot mirror in focus by Jennifer Boyer

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