Faith-Based Strategy vs. Evidence-Based Strategy

Faith-based strategy is the exact opposite of  what we do at Tony Lima Associates — evidence-based strategy.  Strategies based on faith have been shown to produce rates of return on equity about two percent per year lower than strategies based on empirical evidence.  That’s why we promote evidence-based strategies, especially for technology companies.

One example will illustrate the point.  Quite a few years ago we were asked to work on strategy for Sun Microsystems.  You remember Sun — the company that sunk Apollo, then forgot how they accomplished that task.  Our advice was simple and straightforward.  Sun should vastly increase their shipments of hardware with pre-configured software.  That means a Sun box running Solaris with, say, Oracle pre-installed.  Both the Oracle and Solaris software would be tuned in advance to play nice together.  At the time Sun was already shipping a number of Solaris boxes with Oracle pre-installed.  But the Sun forums were bursting with UNIX admins screaming for help optimizing Solaris for their environment.

Sun knew Solaris — after all, they invented it.  Why not just start shipping boxes with SAP, PostgreSQL, SQL Server, and so on, pre-installed with both the software and Solaris optimized for each other?  This would have both slashed technical support costs and improved Sun’s operating margins.  And the data was there for the taking.  All the strategy group at Sun had to do was read their company’s forums!
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Sadly, our advice was ignored.  Oracle bought Sun on April 20, 2009.  Today customers can buy pre-configured Solaris boxes — as long as they’re willing to buy Oracle software.

The major problem with faith-based strategy is that it’s hard to argue with faith.  True believers tend to dismiss evidence that contradicts their beliefs.  And when their company’s stock price drops through the floor and their company is acquired at a fraction of its inherent value.  (Inherent value, of course, is the market value of the company if they had followed an evidence-based strategy.)

About Tony Lima

Tony Lima has been working with technology, economic modeling, forecasting, and market research for 40 years. His background makes him uniquely qualified to navigate this varied landscape. Begin with his education: B.S. in chemical engineering from M.I.T. , M.B.A. from Harvard, Ph.D. in economics from Stanford. His day job was professor of economics at California State University, East Bay. He retired in 2016 to devote his time to consulting and writing. But he has found time to: write (eight books and over 100 articles ranging from wine economics to detailed analyses of meta-language code generators) consult with companies ranging from Microsoft to CEDEX keep his expertise up-to-date, constantly reading and sorting through the avalanche of information available daily maintain three blogs: Wine Research, Wine Economics, and Economic Policy Local policy analysis: Los Altos

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