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THINKERS50 Strategy
The Art and Science of Strategy Creation and Execution
By STUART CRAINER, DES DEARLOVE McGraw-Hill Education
Copyright © 2014 Stuart Crainer and Des Dearlove
All rights reserved.
ISBN: 978-0-07-182754-6
CHAPTER 1
How We Got Here
Everyone in business is eager—sometimes desperate—to find an edge, a way to outmaneuver his or her rivals and secure sustainable long-term profits. This is where strategy comes in. A strategy is a plan or a pattern of actions that organizes the activities of a firm to meet its objectives. In doing so, strategy takes the resources of the firm and the external environment it operates in into account. In the case of a company, the overall strategic objective is primarily to attain competitive advantage, the more long-term, the better.
For organizations and strategy theorists, there are different forms of strategy. Corporate strategy is concerned with the strategy of the overall organization, its mix of businesses, and the direction of the business and may be expressly articulated in vision and mission statements. Whereas business strategy concerns the individual business lines or units in a company, strategic management assesses internal strengths and weaknesses, external threats and opportunities, and the creation and implementation of strategies that link the two to the advantage of the company.
Today, strategy taxes the minds of executives (and governments) the world over as they weigh the forces railed against them, position their firms in markets, rally their resources, boost their capabilities, swim through blue and red oceans, and do their best to secure long-term survival. In the fast-paced global economy, there are a bewildering myriad of approaches to and views on strategy and what can make one company better than another.
Costas Markides, the charismatic London Business School professor and one of the most accessible thinkers on strategy, provides this overview:
There is general agreement that every company needs a strategy—either explicit or implicit. Yet, there is surprisingly little agreement as to what strategy really is. Within both business and academic circles, it is not easy to identify two people who share the same definition of "strategy." Differences in opinion on the content and process of developing strategy are passionately argued. Yet these debates cease to matter when we realize two important points. First, strategy needs to be approached from a variety of perspectives. Second, rather than adopt a single perspective at the expense of all others, good strategies have to achieve a fine balance between seemingly divergent views.
What issues should senior executives consider in thinking about a new strategy and how should they think about them? Despite the apparent simplicity of this question, it is one of the most controversial in the field of management. As with most academic debates, when one probes below the surface, the apparently divergent points of view are in fact amazingly similar. Rather than depend on one perspective at the expense of all others, good strategies encompass elements from all the different perspectives and points of view.
When it comes to strategy, I have found that there are three problem areas of controversy. I believe that sound strategic thinking achieves a fine balance between the arguments surrounding: (1) what constitutes the content and process of strategy, (2) strategy as analysis or creativity and (3) strategy dynamics. Analyzing each area in turn will help in achieving that fine balance.
For example, consider the numerous ways that academics have defined strategy over the years—as positioning the company in its industry environment, as a collection of a few simple rules, as hustle, as stretch and leverage, as the embodiment of a company's values, and so on. It's easy to understand why even the Economist has claimed that "nobody really knows what strategy is."
Similar confusion and disagreements also exist around the process by which good strategies are developed. Let us first consider the debate on the content of strategy. Beyond the rhetoric, we can identify two main schools of thought on what strategy is.
The more "Porterian" (in reference to Michael Porter's work) view of strategy emphasizes the positioning elements. This school views strategy primarily as positioning the company in its industry environment. This is another way of saying that strategy is all about choosing a good game to play. The other main school of thought considers positioning to be static and old news. Proponents of this school encourage us to embrace the new and more dynamic view of strategy, which emphasizes outplaying and outmaneuvering competitors, no matter what game they are playing. According to this way of thinking, strategy is more about how you play the game than about choosing what game to play.
Strategy is both of these things: strategy must decide what game we want to play and then determine how to play that game well. As practised today, strategy is preoccupied with fixing the problems in the existing business rather than thinking about future businesses. The essence of a good strategy is to create new markets, new products and new industries. This leads to the position that strategy should be about competing for the industries of the future rather than competing for market share in the industries of today. It is hard to argue with the need to focus the organization's attention on discovering new markets. But this should not come at the expense of today's businesses.
Therefore, the key question for any company is not whether it should try to create the industries of the future but how to take care of its existing business while at the same time attempting to create the industries of the future. Every company should also prepare for an unknown future—either by trying to create this new future itself or by creating the conditions that would allow it to exploit the future when it unfolds.
Similar fundamental concerns were expressed by Bain & Company's Chris Zook when we spoke:
It's interesting. I looked at a database recently of 300,000 employee surveys that were done with companies headquartered in Europe, and one question that was asked was, Do you have any idea what the company strategy is, what its priorities are, and what makes it special? And only two of five employees in the average business say they have any idea what that is. If you had a marching band or a football team where only two out of five knew the formation, that would be a problem, yet in the very best businesses, 85 percent of people say they really have an idea of what the business stands for. Whether it's a company like Nike that just jumps out at you as being about performance or Tetra Pak where it jumps out at you being it's about the packaging, so often having a really simple and clear and powerful differentiation is the essence of it.
And very often, in the crush of daily pressure and life, executives and management teams find their time frittered away and spent by everything that comes up, every daily crisis, and this is even more true today, with the speed at which the world is changing. And so I think that the essence is that it's very hard to be really self-aware of what are the very few things that you are excellent at.
Military Strategy
As Markides and Zook suggest, strategy is a multifaceted and sometimes confusing part of any executive's life. Before we explore some of the contemporary takes on strategy, let's rewind. The word strategy derives from strategia, the Greek term for generalship, and the earliest studies of strategy were done by military commanders. Even today business executives and academics are fond of drawing on the work of military strategists. It is easy to see why when a predominantly capitalist, free market economy–driven world has promoted a mentality of win at all costs, defeat your rivals, and emerge victorious.
Strategic plans are couched in warlike notions. They exhort companies to seize competitive advantage, battle over market share, and struggle for differentiation. The trouble is that if the opposing army is doing the exact same thing, such strategies often cancel each other out or trigger immediate tit-for-tat retaliation. Strategy quickly reverts to tactical opportunism. As the German Field Marshal Helmuth Carl Bernard von Moltke memorably observed, "No battle plan ever survives contact with the enemy."
Perhaps the most celebrated work from a military strategist is Sun Tzu's The Art of War, written several hundred years before BC slipped into AD and 2,500 years or so before executives started hiring strategy consultants. The book's actual title is Sun Tzu Ping Fa, which can be literally translated as "The Military Method of Venerable Mr. Sun."
A mainstay of bestselling business book lists, The Art of War is a feast of pithy, insightful aphorisms on strategy and tactics. "Deploy forces to defend the strategic points; exercise vigilance in preparation, do not be indolent," writes Sun Tzu. "Deeply investigate the true situation, secretly await their laxity. Wait until they leave their strongholds, then seize what they love." It is required reading for mergers and acquisitions advisors everywhere.
Not that The Art of War is all brute force and brutality. There is stealth and cunning too. "If you are near the enemy, make him believe you are far from him. If you are far from the enemy, make him believe you are near," Sun Tzu advises. "To subdue the enemy's forces without fighting is the summit of skill. The best approach is to attack the other side's strategy; next best is to attack his alliances; next best is to attack his soldiers; the worst is to attack cities."
The authorship of The Art of War remains uncertain. One suggestion is that it was authored by Sun Wu, a military general alive around 500 BC. The book is reputed to have led to a meeting between Sun Wu and his monarch, King Ho-lü of Wu. Sun Wu, unable to source a flipchart, apparently argued his case for military discipline by decapitating two of the king's concubines. Today's strategy consultants use less violent methods but are still likely to get an audience at the very top of the organization, so revered is the field of strategy and people who might provide advantageous insights. To many in the business world, strategy formulation remains the pinnacle of corporate endeavor.
Military Exercise
Right next to Sun Tzu's masterpiece, the bookshelf perusers in the strategy section are likely to find a number of other strategy books with a military association, such as B. H. Liddell-Hart's Strategy (1967), Miyamoto Mushashi's A Book of Five Rings (1974), and The Prince by Niccolò Machiavelli (1469–1527), a Renaissance masterpiece of cunning, intrigue, and brutal opportunism. Machiavelli, a Florentine diplomat, certainly understood the perils of being the first mover in a market, for example. "It ought to be remembered that there is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things," he noted.
It was another soldier, Carl von Clausewitz (1780–1831), who emphasized the difference between strategy—the overall plan—and tactics—the planning of a discrete part of the overall plan, such as the battle. Von Clausewitz also introduced the idea of overarching strategic objectives, which he labeled "grand strategy." The debate about what constitutes strategy and tactics rumbles on today.
Von Clausewitz was a Prussian general who fought in the Napoleonic Wars, including at Waterloo, after which he became director of the Prussian war college in 1818. His book On War was unfinished and was published posthumously in 1831. In it, Von Clausewitz was beginning to appreciate the value of drawing comparisons between the conduct of business and war. "Rather than comparing it [war] to art we could more accurately compare it to commerce, which is also a conflict of interests and activities; and it is still closer to politics, which in turn may be considered as a kind of commerce on a larger scale," he wrote in On War.
The Birth of Strategic Management
Fast-forward 150 years or so and it was in the 1960s when managers discovered strategy and, under the guise of strategic management, identified it as an important subset of management. "It struck me that if you look at strategy as an intellectual construct, a framework, a set of ideas, it really didn't exist in a formal way much before the 1960s," observes Walter Kiechel in The Lords of Strategy: The Secret History of the New Corporate World.
In terms of intellectual first mover advantage, Peter Drucker claimed to get there first. Drucker somewhat immodestly noted that his book Managing for Results, published in 1964, was the "first book ever on what we now call strategy." Drucker chalked up many intellectual firsts, but in reality, his book was preceded by the business historian Alfred Chandler's Strategy and Structure published in 1962 (and, as Henry Mintzberg notes in his book The Rise and Fall of Strategic Planning, also by a 1962 Harvard Business Review article, "The Anatomy of Corporate Planning").
The business historian Chandler (1918–2007) saw strategy as "the determination of the long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals." Chandler's view, much disputed later on, was that strategy comes before structure. Develop your strategy and then construct the appropriate organizational structure to achieve that strategy.
Future contributions from the strategy community suggest that the strategy process is somewhat fuzzier than Chandler described it. In Chandler's world companies would hatch flawless strategies and then manufacture structures and organizational maps to fit them. A closer look at corporate reality suggests that strategy and structure mix somewhat more haphazardly. Still, Chandler must be credited with drawing attention to the importance of the link between strategy and structure.
Then, while the rest of the world was discovering Jimi Hendrix, the Beatles, free love, and hallucinogenics, managers were wrestling with the next developments in strategy, in particular the book Corporate Strategy, written by Igor Ansoff (1918–2002) and published in 1965.
When we interviewed Ansoff in the late 1980s, he told colorful stories about his birth in Vladivostock to a "400 percent" Russian mother and an American diplomat father and how his career change from executive to academic was the result of a period of contemplation during which he grew a beard and consumed a case of whiskey. His theories were less colorful but highly influential. Ansoff, an engineer and mathematician by training, worked for the RAND Corporation after university and then for the Lockheed Corporation. Leaving industry in 1963, he joined Carnegie Mellon's Graduate School of Business Administration and subsequently taught at a number of universities. It was his experiences at Lockheed that inspired his first book, in which he examined the implications of what he had learned while at Lockheed, in particular that there was "a practical method for strategic decision making within a business firm" that could be applied by other managers in their own organizations.
The world, said Ansoff, was struggling to cope with relentless change (as it continues to do today). Managers were wrestling with a "deluge of technology, the dynamism of the worldwide changes in market structure, and the saturation of demand in many major United States industries." In the face of such relentless change, many companies needed to "continually survey the product-market environment" for new opportunities, as no business could "consider itself immune to threats of product obsolescence and saturation of demand."
What managers needed to do, Ansoff decided, was conduct more analysis. There were, he suggested, four different but standard types of decision: decisions regarding strategy, policy, programs, and standard operating procedures. Among these, strategic decisions demanded the most management attention and energy. "The end product of strategic decisions is deceptively simple; a combination of products and markets is selected for the firm. This combination is arrived at by the addition of new product-markets, divestment from some old ones, and expansion of the present position," Ansoff noted.
Strategic management was "the part of management which develops a firm's future profit potential by assuring that it does business in markets which have the potential of satisfying its objectives; that it offers products/services which these markets want; and that it offers them in a way which assures it a competitive advantage." This was opposed to operating management, which was "the part of management which, using the profit potential, optimizes a firm's profitability through efficient production, distribution and marketing its products/services generated by strategic management."
To help with the strategic type of decision making, Ansoff offered the Ansoff model of strategic planning, which focused on corporate expansion and diversification rather than strategic planning overall. It was also analysis-heavy, and a common criticism of the overly analytical approach to strategic management was that it led to "paralysis by analysis," in which a lot of time was spent on the analysis of the data that such strategic plans were founded on, so much so that the plans were made but rarely implemented.
(Continues...)
Excerpted from THINKERS50 Strategy by STUART CRAINER, DES DEARLOVE. Copyright © 2014 Stuart Crainer and Des Dearlove. Excerpted by permission of McGraw-Hill Education.
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