Assumptions – the Strategy Killers

The history of business is littered with tales of strategic failure, often the result of wrong, misguided or untested assumptions.

The American retailer GEM decided to introduce Britain to the concept of out-of-town retailing in 1964, opening a large warehouse-style store in West Bridgford near Nottingham, and another in an old cinema in Crossgates,Leeds. 

GEM described the concept as “one-stop discount stores for the motorised shopper”, and therein lay the problem. They had assumed that UK car ownership, and specifically women’s access to a car, mirrored that of USA.  Far from it.  The stores’ performance fell well below expectations and in 1966 they sold out to Associated Dairies’ supermarket subsidiary, ASDA.  Twenty-fiveyears later, the West Bridgford store would be the ASDA store with the highest sales in the chain. By then, times had changed.

GEM had spent a lot of time looking at sites, but it seems they did not test the car ownership/access assumption. 

Government strategies to address the Climate Crisis have placed heavy emphasis on a switch to electric vehicles (EVs).  The UK says it will ban sales of new petrol vehicles from 2030, with the EU and California following in 2035.  The plans for how to get there are not terribly clear, but a number of assumptions have probably been made:

  1. There will be enough electricity generated to power the expected six-fold increase of EVs on the road.  For the UK, estimates vary: the National Grid says there should only be a problem at peak times (and that smart charging is the solution), whilst other experts have predicted the need for at least five new nuclear power stations. 
  1. There will be sufficient production of batteries to fit into the manufacture of EVs. Current plans for worldwide production of batteries would deliver one quarter the number of batteries required so 75% will have to come from new entrants to the battery business.
  1. Dependency on China will not be a problem.  China currently accounts for 80% of EV battery production,and these batteries require nickel, cobalt and lithium. Chinese companies refine 70% of the world’s lithium, 84% of its nickel, and 85% of its cobalt and these percentages are unlikely to change by much.  There is also a key dependency on the Democratic Republic of Congo as a source of cobalt (child labour and terrible working conditions are further issues here).
  1. Availability of other commodities will not be a problem either. For example, copper plays a large part in electrification of the economy but extending a mine takes 10 years andopening a new one takes 30.  Also, sulphuric acid is used in refining metals such as nickel and lithium and is usually a product of oil and gas refining which should be reducing to zero if carbon emission targets are to be met.The alternative process liberates toxic heavy metals into the earth.

In the words of commodities consultant François Lambert, quoted in The Economist, the EV industry “is going to be living a big lie for quite some time.”

Let’s hope that somebody somewhere is working on these (and many other assumptions).

When assumptions go unchallenged or untested, there is a risk that the gleaming strategy they support may instead dissolve into dust.

Data Sources: Gem 1964-1966, Britain’s First Out-of-Town Retailer – Prof Paul Whysall in the Review of Retail, Distribution and Consumer Research; Nationalgrid.com; The Financial Times; The Economist.

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