The causes of strategic drift and how to avoid them

We’re all familiar with businesses that simply failed to adapt to change and quickly became irrelevant.

• Xerox actually invented the first PC, but they didn’t think it was as vital as copy machines.
• In the 2000s, Yahoo rescinded its offer to buyGoogle and failed to buy Facebook.
• MySpace balked at its own opportunity to purchase Facebook for $75 million in 2005.
• Sony had the tech to usurp Apple’s iPod but couldn’t see the point in reinventing itself.

It would be easy enough to conclude that fortunes simply change overnight. But, what’s actually at work is strategic drift. 

The good news: strategic drift can be prevented. But before you can prevent it, you have to understand what strategic drift actually is. 

What is strategic drift?

Strategic drift occurs when an organization fails to pay attention to the current industry trends and consumer demands. If this gradual deterioration of competitive action is allowed to go on, it often results in the total breakdown of a company’s ability to meet its core business objectives.

Like a ship without a rudder, gradually drifting off course, businesses experiencing strategic drift hardly notice it in the moment. 

Take, for example, how cable TV providers continued to raise monthly subscription fees, all while ignoring a slow, but steady stream of cancellations. This trend is now known as cord-cutting. By 2020, when the pandemic should have ushered in a new height in viewership, the number of cord-cutting households in the U.S. totaled 31.2 million. By 2024, data indicates that 46.6 million (over a third of U.S. households) will say no to paid TV.  

By failing to properly react to the changes around them, companies that experience a strategic drift not only lose their competitive edge, they also risk losing loyal customers. The power (and resolve) to avoid strategic drift is entirely dependent on the ability to notice the warning signs. 

The four phases of strategic drift

Strategic drift can be broken down into four distinct phases leading up to a transformational shift across an entire business. Those phases are: incremental change, strategic drift itself, flux, and transformational change. 

1. Incremental change

The incremental change phase of strategic drift often happens after a company seems to reach the height of its success. Abercrombie & Fitch was regarded as a highly influential, trend-setting clothing brand throughout the early 2000s. Their proven formula of oversized logos, high prices, and “sex sells” ads made A&F a coveted status symbol for image conscious teens. Until it didn’t.

Helming the brand since 1992, A&F CEOMike Jeffries felt bold enough in 2006 to proclaim, “We hire good-looking people in our stores and attract other good-looking people. We don’t market to anyone other than that.” At first, all of the controversy and negative publicity helped boost sales. 

Later, the retailer would be sued for discriminatory hiring practices against minority applicants. A&F settled for $40 million and committed to revisiting its employment guidelines. A&F’s noticeable lack of plus-size clothing in 2013 invited new criticism of Jeffries’ past remarks about sex appeal.

The CEO later offered an anemic apology. But by this time, A&F’s once-reliable teenage audience had grown up and moved on. With mall traffic down 30% in 2014, market freefall was inevitable.

Fortunately, A&F finally began to realize the error of ignoring changes in fashion and alienating a broader and more stable group of potential customers. Jeffries eventually stepped down as CEO as A&F targeted a young-adult audience with a mature clothing line and subdued advertising.

The takeaway is that when strategic drift is in the incremental stage, a business can still change course, make small adjustments, and maintain its relevance even in the fickle fashion industry. 

2. Strategic drift

By this phase, the strategic drift is already underway and the business is increasingly distanced from its once-loyal core audience. This is also when a business noticeably loses its competitive edge and its grip on market dominance.

Toys “R” Us was once one of the largest toy store chains in the world. But by the 21^st century, the store failed to embrace ecommerce and the digital transformation sweeping the retail industry. 

Instead, Toys “R” Us would ink a decade-longdeal to become Amazon’s exclusive toy vendor. This shortsighted decision and failure to innovate proved to be a costly strategic drift as customers became accustomed to the convenience of shopping for toys online and not in-store.

And although Toys “R” Us was Amazon’s exclusive toy vendor on paper, in reality, this would not prevent other vendors from selling toys on the platform. Which meant consumers found it only too easy to compare prices against Toys “R” Us and chose another option all on the same site.

Toys “R” Us sued Amazon, but it was too little, too late. Overwhelmed by debt and inundated by competition, they filed for bankruptcy protection in 2017. Could this crisis have been avoided?

Given its name recognition, relationships with toy manufacturers, and foresight to pursue digital as a retail channel, Toys “R” Us had everything it needed to succeed. However, by ceding control to Amazon rather than investing in its own website, Toys “R” ended up losing out to strategic drift. 

3. Flux

This third phase of strategic shift is characterized by a widening gap between operations and the market, as well as ongoing indecision by management on how to address strategic drift.

When organizations experience flux, they may even acknowledge that market trends or shifts in consumer tastes are leading up to a make-or-break moment. In spite of this realization, decision makers at the company seem incapable (or unwilling) to reach a consensus that turns the tide.

While in the flux phase, management seemingly fails to grasp how (or why) tactics that worked before don’t work any longer. By not choosing to change course, strategic shift only increases.

Case in point. Throughout the 20^th century, Polaroid was synonymous with innovation. Yet, as a giant in instant photography, Polaroid underestimated the level of competition presented by digital photography. By the late 1990s, Polaroid had an important decision to make: Would it shift its considerable R&D resources to digital or continue to focus on its classic product line?

Oddly enough,Polaroid was no stranger to the new medium of digital photography. 

The company had conducted research into digital imaging as far back as the 1960s. Rather than face new market realities and make the transition to digital long before it became a mainstream phenomenon, management instead chose to double down on its instant photography products.

For CEO Gary DiCamillo, the reality that people would actually abandon print photography in droves came as a shock. When asked about his past views on Polaroid’s viability in the digital age, he freely admits, “That was a major hypothesis that I believed in my marrow that was wrong.”

This strategic shift flux can be attributed to other factors, including a bias for advancements in chemistry over hardware or technology. Even as nostalgia fuels a minor comeback for Polaroid, any potential it had to become a dominant force in digital photography will likely never develop.

4. Transformational change or company death

Whatever the causes of strategic drift at an organization, by this phase a business is left with only two choices: embark on a transformational change, which could result in surprising success or complete failure, or stick to the outdated strategy and experience a slow death.

Not everyone falls victim to strategic drift. Some companies catch their strategic drift before it’s too late and course correct in time. Others will even use it as the catalyst to come back stronger.

In 1997, Steve Jobs returned to Apple at perhaps its lowest point ever. Only two years earlier, Jobs left in disgrace after losing a boardroom battle to John Sculley, the very man he had handpicked as CEO. In retaliation, he and a slew of Apple employees formed NeXT Inc.as a rival computer company. Although not a major success, Jobs later sold it to Apple for $400 million.

When Apple needed an interim CEO, Job readily obliged. At this time, the company he founded decades earlier had seen itself shift from a customer-centric company to just another bloated tech business. Determined to turn things around, Jobs would invoke a transformational change.

Under his guidance, Apple received a cash influx of $150 million from Microsoft to allow them to ship Microsoft Office (and Internet Explorer) on Mac devices. More importantly, Jobs would push Apple to innovate beyond the computer market and tackle other technological breakthroughs.

Apple’s transformational change was an intelligent response to strategic drift that would soon awaken a creative renaissance.

In the years that followed, Jobs and his team would revolutionize the industry by introducing some of the most influential consumer products of the century, all because he tackled strategic drift head on.

Why does strategic drift happen?

As evidenced by the corporate cautionary tales we’ve explored, strategic drift is often the result of one of these three issues:   

Failing to understand customer demand

In today’s hyper-competitive world, collecting customer data and conducting market research isn’t enough. At best, data and research only provide a snapshot of the average customer. There are always exceptions to the average, and failing to attend to these exceptions can often result in strategic drift.

To avoid this problem, ask yourself:

• Is there a segment of your audience that is growing and deserves added attention? 
• Is there a segment of your audience that is beginning to shift its loyalty to your competitors?

Look beyond the algorithms and work to stay in touch with customers. Maintain an active social media presence. Actively resolve customer complaints online, over the phone, and in person. If possible, interact with customers, gather feedback, and value your most active and loyal users.

One simple way to explore what your customers want is to create a customer journey map.

Management complacency

Let’s imagine things are going well at your company. Sales are good. Growth projections are strong. Market dominance is unquestioned. At this point, you might think, “Why fix it if it’s not broken?” But then, innovations give way to complacency. Soon enough, quality suffers. Customer interests change. Competitors take notice.

Not adapting your corporate strategy or keeping up with the times is a recipe for strategic drift.

Instead, support positive disruption and fresh perspectives at your company. Most often, it’s the employees who work directly with your product or interface with your customers that can provide the insights and viewpoints necessary to stop strategic drift before it becomes a problem.

Look for new possibilities worthy of exploration. And don’t be afraid to challenge the status quo to keep the company moving forward. 

An uninviting culture

Speaking of culture, how inviting (or uninviting) is the one at your organization? Companies can lose their way by opposing growth and allowing their culture to stagnate. Of course, the opposite is also true. Rapid growth can result in a decline in company culture. 

During times of transition, a culture that was once inviting and thriving can become secondary to meeting the demand for scalable processes. In this environment, employees can end up feeling less valued.

Of the three causes of strategic drift, an uninviting culture is oftentimes the most unsettling.

Fortunately, it’s also one of the more preventable causes of strategic drift. Make sure that your company formalizes a mission statement and a set of values to help everyone believe and work toward a shared vision. Motivate employees through consistent, meaningful recognition. Inspire more experienced employees to mentor new recruits. And hire for attitude as well as core skills.

Remember, an inviting culture is not just access to free snacks, ping-pong tables, and unlimited vacation. It means connecting work silos, building trust, and giving all employees a voice. 

Strategic drift only seems inevitable. Being vigilant and involved as a leader will act as an early warning system for when strategic drift is taking root. Keeping the door open to organizational flexibility and tactical resilience also helps. 

Safeguarding continuity can be a good thing. But preparing for strategic drift is critical. With a top-down approach and leadership support, unexpected changes can not only become manageable, they can become opportunities for transformation and growth.