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Companies often undertake investments or make decisions that slowly erode their original unique strategy or dilute the sharp boundaries that gave the firm its original clear identity. This happens because it’s not always clear to decision makers that the decision will dilute the core differentiation, there are many decisions that combine to dilute the differentiation, and managers are often motivated by short-term incentives to look for growth and profit opportunities. Avoiding these traps requires understanding and internalizing what the company’s core differentiators are. Clarity about the core features of the firm’s strategic position provides two key benefits. First, it helps the Board of the company rigorously evaluate growth opportunities presented by senior management. Second, it helps operational managers throughout the organization make decisions with autonomy. This is because the core elements of the strategy can act as the guardrails within which operational managers can decide what they can do by themselves and what they need to get approval for before acting. This reduces the risk that managers will make decisions that move the company away from its core strategic position.
One of the biggest challenges in strategy is overcoming what Michael Porter called the growth trap. Simply put, in their efforts to grow, companies often undertake investments or make decisions that slowly erode their original unique strategy or dilute the sharp boundaries that gave the firm its original clear identity.
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