Strategy Flaw: Having the Tail Wag the Dog

When firms have a problem area within the business, the natural tendency is to try to fix it. However, some times the focus of all the efforts and resources on fixing a lackluster business unit is a strategy flaw of the tail wagging the dog. An examination of cause and effect is needed to figure out which is the dog and which is the tail of a business.

First, one has to figure out if the percent of the business unit’s contribution to the firm’s revenues is sizable. If not terribly sizable, one has to determine its growth trajectory and potential. If both are not high, then this is really a “dog” in the BCG matrix (not the kind of dog we’re looking for!). In this case, there is really not much point in focusing any efforts in growing or fixing this business unit. Divesting is best, if possible. Or, use it as a loss leader to boost other business units.

Should the business unit contribute a decent amount to be germane to the firm and exhibits growth potential, it is then important to figure out the flow of the business. Does purchase of goods and services from this business unit flow to additional purchases of goods and services of other business units within the firm, or is it the other way around? If little flows from the business unit in question out to other business units, then it is likely a tail (definitely if the size is small). Time to focus your efforts on the business unit that not only generates cash in itself but also contributes to the growth of other business units – there’s your dog that should wag the tail!