Quantifying Strategic Disagreement
In her book “The Change Monster,” management consultant Jeanie Duck stated that “the lack of alignment among the leaders is the most common cause of failure for major change efforts.”
Duck knows something about transformation: She founded Boston Consulting Group’s change management practice in the late 1980s.
Management consultants are often called upon to help companies clarify strategic intent by building agreement among executives—and it’s not always an easy process. Innosight, the respected boutique strategy consultancy founded by Clayton Christensen, acknowledged that “leadership alignment is a persistent challenge.”
Even for consultants, it can be difficult to quantify the business cost of misalignment.
Ask yourself these five questions:
When was the last time your leadership team had an explicit review of the strategy
How do you know if your leadership team is fully supportive of your strategy?
How much is at stake if your strategy does not succeed?
Are you on track to deliver on your business objectives this year?
Are you experiencing friction in those parts of your organization most critical to your strategy success?
What’s critical is that the leadership team gets to agreement after a healthy discussion and facilitated process. As business leaders, our responsibility is to have the hard conversations that address disagreement and build coherent, committed, and accountable teams. Only then can our employees deliver their full potential—enabled and supported by a clear strategy and well-aligned leaders.
Let’s take a look at BMW and how the Predictive Index measured the cost of the company’s lack of agreed-upon strategy.
Agree or Fail
Strategic disagreement between Krüger (CEO of BMW) and Fröhlich (Director of Development at BMW) largely explains why BMW has been unable to capitalize on its early lead in electric cars. Duck stresses how lack of strategic agreement at the top creates a toxic environment that stymies change. This is what’s most likely happening at the automaker.
We can imagine how the disagreement between Krüger and Fröhlich is impacting their organization:
Decision-making inside BMW has likely drastically slowed.
Executives’ disagreement at the top creates enemy factions further down the
Budgets are wasted on aborted initiatives.
Competing goals between teams curtail collaboration.
Lack of clarity crushes morale among employees.
Regardless of the type of company you run, you need an explicitly stated, agreed-upon business strategy. This is the foundation on which leaders can design a deliberate talent strategy and plan other productive investments. When this foundation is shaky, the bill adds up.
A 9-Figure Disagreement
Let’s look at the numbers. We’ll estimate how much revenue BMW is foregoing by not having a clear and agreed-upon electric strategy—and thus lacking a competitive offering in the segment.
For this analysis, PI focused on two vehicles that most auto analysts agree compete directly with one another: BMW’s 3 Series and Tesla’s Model 3. Both models are critical for their respective parents: The 3 Series represents about 30% of BMW global sales, while the Model 3 represented 82% of Tesla’s sales in the third quarter of 2019.
Using data, the Predictive Index states that the 3 Series was the competitor most impacted by the Model 3, with its market share dropping from 35% to 20%. This segment represents about 450,000 sales annually—so Tesla is constraining BMW’s revenue by 67,500 cars. This represents, in the estimate:
$2.7B lost in annual revenue
A 22% fall in BMW’s U.S. car sales
A 2.5% decline in BMW’s global revenues ($107B)
One may object that other factors could have played into the erosion of 3 Series sales. However, we can reasonably posit that the Model 3 competition is the dominant factor: Tesla data shows that the 3 Series is the second-most traded-in car by Model 3 buyers. (The first is the Toyota Prius.)
Let’s look at the numbers globally: BMW sells 2.5 million cars every year—and the U.S. represents 12% of its volume. If Tesla causes BMW to experience the same 20% to 25% sales erosion globally as it does in the U.S., BMW is at risk of losing $20 billion in annual revenue.
In other words, each day Krüger and Fröhlich are unable to resolve their strategic differences costs BMW $55 million in lost revenue.
We can picture the frustration of Harald Krüger. He sees the threat and has clearly been trying to accelerate the development of electric cars to compete against Tesla. However, his development lead has shown lukewarm support for that strategy—and essentially stalled Krüger’s efforts.
Talent Cost of Misalignment
The damage goes beyond financial losses, too. Dissent at the top is likely reverberating throughout the organization—lowering morale and driving high performers out the door. For example, take a guess who Tesla’s new VP of Europe is. His name is Jan Oehmicke—and he was previously BMW’s VP of Sales and Marketing.
BMW’s senior leadership isn’t impervious to the impact, either. The auto maker’s Board of Directors expressed its impatience at the lack of progress in electrification at the BMW Annual Meeting in May 2019. It’s reportedly considering replacing Krüger as CEO.