How Sears broke its OODA loop and missed the internet

Sears retail store

“Keep your eyes on the prize” is a cliche because it works.

Focusing on a goal is not only the cheapest path to success, but it’s also the best way to use all your intangible assets together in strategy that can make you look like a superhuman.

The reason for this godlike power is that when a company concentrates on an objective, it may paradoxically appear to be doing a whole bunch of radically different things simultaneously. One year it might be delivering a great product, then a month later switch its entire business model to become a service provider instead.

But what can look like corporate whiplash from the outside is just the natural result of a company trying to solve a single customer problem. By keeping its “eyes on the prize,” a prudent company can quickly adjust its strategy the moment market conditions change. Done right, it’ll appear as though you are predicting the future.

American military strategist John Boyd can help explain why incredible feats are possible by sticking to a simple plan and paying attention to intangible assets.

Boyd is famous for inventing the “OODA loop” process to help fighter pilots improve their decision-making and win more dogfights in the air. It stands for Observe, Orient, Decide and Act (OODA). His model was so well crafted that it has been applied in every conceivable sector from sports and politics to business and marketing to make everyone who uses it look like minor gods.

“Observe” is like situational awareness. So, instead of assuming you know what’s going on, a good leader observes what is really happening with an open mind. “Orient” means you find the correct models to deal with what was observed, at which point you “decide” on the best model to use which leads to the “act” of executing. The loop begins again as you constantly assess the feedback from any changes to the environment due to your action.

Boyd’s primary audience was among fighter pilots who had one goal: get in position to fire a missile. The OODA loop process allowed them to duck, dive or spin in any way they pleased, so long as their movements got them into position faster than their adversary could. From the outside, the pilots appeared to have superhuman foresight and impeccable timing. But the trick was that they only had one goal and a clever system for quick decision-making. That’s all it was.

Now you can see why Boyd’s OODA loop is so important for business.

When a company has a clear goal, it can calmly “observe” market conditions. The moment customer behaviours shift, a company can quickly “orient” itself by choosing which of its intangible assets might help get ahead of those changes. At that point, the steps of “decide” and “act” will be relatively easy.

Intangible assets are critical for feeding the OODA loop. For example, you might have excellent data about one part of the market but other sectors are unknown. That’s a flaw in your data gathering. By capturing more data about important parts of the wider economy, you can “observe” opportunities faster and “orient” your company to be a first-mover.

Similarly, a robust brand that is well known for its quality and reliability, rather than just its products, offers a company incredible flexibility if there is a sudden need to “act” on a new path. When customers already trust a brand, they will follow its products or services no matter what they might be.

Or suppose some of your employees have deep industry experience in a sector that’s about to boom. In that case, they might be perfect for leading a team tasked with finding ways that your company can leverage the emerging technology or opportunities.

Likewise, perhaps the looming market changes might make all those late nights at restaurants and flying halfway across the country to forge tighter relationships with key suppliers worth the effort. You can “observe” which relationships might be key, then “orient” to the best person, before “deciding” on which relationships to use (the “act”).

As you can see, every type of intangible asset can help to feed the OODA loop process. Yet all this will be useless if your company lacks a unifying goal. It needs to understand why it is in business.

If you’re looking for an example of what goes wrong when you take your “eyes off the prize,” consider the tragic story of American retailer Sears.

In the early 20th century, Sears was the undisputed champion of on-demand delivery (although that term wouldn’t exist for another 100 years). It issued an annual catalogue that let the most remote parts of America order all kinds of goods directly to their town.

Sears continued to evolve this comprehensive catalogue for decades, adding more and more products and extending its delivery services to towns further afield. It was doing so well. And then the internet came along.

Sears ignored the technology and continued to produce its physical catalogue instead. Then in 1994, a man named Jeff Bezos listed a bunch of goods on a little website called “Amazon” which was essentially an online version of the Sears catalogue. Bezos had spotted the opportunity and capitalised on it while Sears was blind to what was about to happen.

Sears failed to see how the internet could help it deliver goods to customers at the lowest cost. This was its unifying goal. That’s why Sears was invented in the first place. The retailer had completely forgotten why it existed and so it missed the opportunity of the internet.

The retailer was dipping into all kinds of new industries to expand its portfolio. But there was no unifying goal to its investments.

For example, in 1931, Sears started an insurance company called Allstate. It also bought the financial investment firm Dean Witter and real estate broker Coldwell Banker in 1981. Then in 1984, it started a joint venture with IBM called Prodigy, an online computer service that was essentially a prototype of AOL.

A year later, Sears launched its own major credit card, the Discover card. For a long time, the only credit card anyone could use while shopping at the largest department store in the US was the Discover card.

Think about this for a second. Sears had all the right intangible assets. It had 100 years’ worth of customer data. It had rich and trusting relationships with thousands of the biggest suppliers. And its industry expertise in delivery was unparalleled. It even had its own credit card (!) that could generate huge goodwill, trust and brand power.

However, its OODA loop was broken since it no longer had a unifying goal into which all these intangible assets could fit. As a result, Sears not only stopped publishing its catalogue in 1991 (two years before Amazon launched), but it also didn’t “observe” how the internet could improve its service, which meant Sears couldn’t “orient” and had no chance to “decide” or “act.”

In 2022, Sears filed for bankruptcy. That same year, Amazon’s EBITDA was just over $US54 billion.

Ouch.

Amazon won because it had a single, unifying goal: to deliver goods at the lowest cost. The internet was just one way to do this and happened to be the most efficient method at the time. But if the internet turned out to be all hype, then Bezos would likely have switched to a better way. His OODA loop process allowed him to adapt quickly.

The lesson of Sears is that a unifying strategy – What are you trying to do? – is important for understanding how your intangible assets should be deployed and what assets you may need to create.

An OODA loop can make your company look superhuman, but only when your intangible assets stay sharp and your “eyes are on the prize.”

Don’t be like Sears. Be like Amazon.

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