In this post, I’ll be taking a look at the issue of risk in strategy. Largely ignored over the past decade or so, risk has become a very timely topic in the recent economic downturn. Recent books by Michael Raynor (The Strategy Paradox) and Phil Rosenweig (The Halo Effect) suggest that “laser sharp focus” may have its risks as well.
As the videos show, too much focus on a single market, a single product or a single demographic can leave you very vulnerable to unanticipated shift in the marketplace. If a competitor enters with market disrupting new products or technology, if the world economy suddenly shifts a more focused organization is at greater risk.
Highly focused organizations may not see adjacent opportunities – they’re just not aware of them, or feel that they would reduce their focus. Less focused organizations still have other markets, other customers and other products to cushion the blow of an unanticipated loss. If we use a stock market analogy, diversification reduces risk, but it also reduces rewards.
It is true that focus improves the likelihood of major success – the home runs. However, it is questionable as to whether these are sustainable over time. According to both Roseweig and Raynor, most high flying companies outperform the marketplace for a few years and then revert to average performance.
There are important benefits of focus. How much is too much? When do you create so much risk that it outweighs the benefits of focus? Those are questions for my next post.