You have spent a lot of time and resources on a project that has not generated expected results. Should you cut your losses and abandon the project or ramp up the commitment until it works? While there are different ways to evaluate whether an initiative should be stopped or continued, the most important thing is to have a strong process for analyzing each step of the strategy creation and implementation path to reduce the risk of making poor decisions.
One of the most challenging business decisions is when to change strategic direction. A major reason for this difficulty is that the question of what to do involves forecasting future events and it is never 100% clear if an initiative is on the verge of success or about to take a turn for the worse.
In the face of this uncertainty, some companies adopt fail fast models while others favor long-term commitments. While both approaches have strengths and weaknesses, irrespective of strategic outlook the most important thing from a practical perspective is to develop a decision-making approach that minimizes bad decision risk.
Bad decisions can occur for several reasons, including becoming emotionally attached to possible strategic outcomes, losing sight of the relationship between an initiative and broader firm value and misreading market and other signals.
This can involve overreacting to negative signals (such as the loss of a client or a drop in stock prices) or not taking seriously and reacting fast enough to other signals (such as employee discontent or the entrance into the market of a very strong competitor).
Fail Fast Model
The essence of the fail fast model is that the best way to implement strategy is to test something to see if it works and if it does not work quickly abandon the idea, pivot and try something new.
While there can be many variations in practice, this strategy implementation model is generally built on several assumptions:
● Product Validation. The fail fast model assumes that short-term market reaction to a proposed product or service is the best predictor of whether or not it will be successful. The market knows best.
● Failure Criteria. The fail fast model assumes that if a project does not meet a single or limited number of performance targets, it will likely not be successful. A limited number of responses are a good representation of a large number of responses.
● Resource Allocation. The fail fast model assumes that if a project is not working it is better to quickly abandon it and avoid spending scarce firm resources on something that is not likely to work in the future. The only thing worse than wasting money is wasting more money.
● Failure Lessons. The fail fast model often completely discards lessons from the failed project and tries something completely different. Rather than waste time in studying something that does not work it is better to invest that time in something that will work.
Staying the Course
The staying the course model is based on the assumption that the best way to implement any business model is to continue on the course regardless of setbacks until the initiative ultimately succeeds.
● Product Validation. The stay the course model assumes that current market reactions may not be a good predictor of how viable a strategic initiative is. The market that does not exist may need to be created.
● Failure Criteria. The stay the course model generally sets failure criteria very high and initiatives are only abandoned in the face of compelling reasons to do so. Failure only occurs when someone gives up.
● Resource Allocation. The stay the course model assumes that one must absorb short-term losses to be able to realize long-term success. The existence of a reality of short-term losses on the way to success may helpfully raise barriers to competition and give the firm a competitive advantage.
● Failure Lessons. The stay the course model seeks to incorporate lessons from the strategy implementation process into the original strategy and try to improve it. All initiative experience can be used to make the next iteration of the initiative better.
Summary of Strategy Change Model Differences
| Fail Fast | Stay the Course | |
| Product Validation | Short-term market reaction | Long-term market creation |
| Failure Criteria | Often set relatively low | Often set relatively high |
| Resource Allocation | Best to cut losses quickly and move on | Best to continue to invest to achieve long-term goals |
| Failure Lessons | Often not relevant to next iteration | Incorporated into next iteration |
A Model for Strategy Evaluation
Just as there is no magic strategy, neither the fail fast nor the stay the course approach can be applied to the evaluation of every strategic initiative. For every decision to terminate a bad strategic initiative that saves a firm from a large amount of wasted resources there is one where thanks to repeatedly not giving up success was finally reached. Due to this, it is vital for a firm to develop a strong strategic framework to increase the likelihood of making the correct decision.
● Rigorous Strategy Component Analysis. A strong framework for reviewing strategic initiatives requires that each component of the strategy process be subject to detailed internal and external review. In the case of the action plan, for example, this could include rigorous analysis of market factors, the ability of a team to carry out the plan and the resources required to implement it. Given the ability of firms to become blinded by their own strategic initiatives, it is often very useful to have particularly major strategic initiatives vetted by third parties.
● Staggered Withdrawal or Ramp Up Processes. While at times internal or external factors will require immediate strategy decisions, often there is at least some flexibility regarding exactly when and how decisions to change of course of action will be implemented. Because of this, any decisions to change a strategic initiative should be based on a gradual process and a level of review that is commensurate with the importance of the decision. Strategy change decisions that are required to be staggered often significantly reduce the risk of misreading market or other signals.
● Feedback. Since the initiative itself will be the best source of information regarding what is going right with the project and what is going wrong, it is important to continually collect data regarding the project and check it against project expectations.
Conclusion
The process of strategy implementation will always clash with the reality of future uncertainty. While determining whether or not a strategic initiative should be continued can be very difficult, a strong strategy evaluation framework with appropriate strategy decision checks and balances can greatly assist in determining when a company should keep going despite repeated failures and when it should abandon a course of action even though it appears to be successful.
The photo for this article was taken from the Unsplash website. The photographer is Cyrus Pellet.