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Good Strategy Comes With Tradeoffs

Mario O. Vicari, CPA
Mario O. Vicari, CPA Director, Family-Owned Businesses Group Co-Leader, ESOP Group Leader

I just finished reading the biography of Steve Jobs, arguably the greatest business leader and company builder of our era. There are so many attributes of Jobs that made him great, but one of the things that struck me in reading the book was his ability to prioritize opportunities and focus his efforts on a relatively few things at once.

One example of this is the iPad was developed before the iPhone; yet Jobs, recognizing the mobile market was a greater current opportunity, put the iPad on hold for four to five years to concentrate efforts on the mobile device, which revolutionized the market and securely positioned Apple as the market leader.

When you consider the size of the iPad and the iPhone opportunities, it is amazing Jobs had the discipline to completely focus his company’s efforts on only one opportunity at a time.

The ability to focus on a relatively few things, which involves making tradeoffs, is one of the most difficult things private companies face in developing their business strategies.

We find many private companies tend to pursue too many opportunities or initiatives for two main reasons:

  1. Most private company owners and entrepreneurs are can-do people. They are not afraid to take risks and generally see the glass as half full, which means they tend to see the opportunity in most things. While a positive outlook is beneficial in many ways, at times it can create an environment in which the company will chase too many opportunities rather than focus its energy on the few that matter.
  2. The pace of change and the challenges facing companies require a constant re-assessment of where you are exposed and where you can improve. The outcome of these assessments usually produces long lists of issues and areas for consideration to improve competitiveness. Arguably, the company that does not produce a long list of issues may not be making a fair self-assessment of its competitive position. This makes prioritizing a challenge.

Making tradeoffs and focusing your strategy is critical because private companies have limited resources to implement strategic change in their companies. Diverting those resources in too many directions strains resources and often causes a low level of implementation. Consider: Is it better to work on 10 things and implement them at a 10 percent rate or work on two important things and implement them 100 percent?

All companies face the dilemma of having too many things to do with limited resources. For strategy to have a bigger impact on your company’s results, the following elements are critical:

  1. Be aware. Realizing tradeoffs are essential to implementing your strategy is the important first step. This should be an overriding assumption in any discussion of strategy — the knowledge that you can’t tackle everything at once.
  2. Keep score. After the analysis phase of strategic planning, develop a scoring mechanism to assess which items to work on so you can establish priorities. This scoring mechanism could include things like effect on cash flow, risk of failure, financial resources, ease of implementation, etc. Each company is unique and will have different metrics to evaluate which initiatives should be the priorities.
  3. Hold onto your notes. Just because certain items do not make the cut as an area of focus today does not mean they are unimportant and should not be considered in the future (think about the iPad). Strategic work is an ongoing process, and the items that were not chosen to work on should not be discarded. Keep your notes as the basis for your next planning session so you can revisit the items you passed on last time.
  4. Stay disciplined. Discipline begins in the planning phase and has to carry over to implementation. The companies that are the most successful have tremendous operating discipline in determining what they will and will not work on.

Making tradeoffs does not mean you are ignoring important issues. It simply recognizes that focusing your efforts on top priorities will have a much greater impact on a company’s results than pursuing a strategy without focus. 

Mario O. Vicari can be reached at Email or 215.441.4600.

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Mario O. Vicari, CPA

Mario O. Vicari, CPA

Director, Family-Owned Businesses Group Co-Leader, ESOP Group Leader

Construction Specialist, Family-Owned Businesses Specialist, ESOPs Specialist, M&A/ Transaction Advisory Services Specialist, Transition/Exit Planning Specialist, Business Valuation Specialist, Owner Operated Private Companies Specialist, Private Equity-Backed Companies Specialist

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