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Strategy, Seriously

By Stuart Crainer and Des Dearlove

Brightline Initiative BlogIn the early 1960s while the world discovered love, hallucinogenics and Jimi Hendrix, managers discovered strategy as their new holy grail.  They did so, not in San Francisco or at Woodstock, but in Igor Ansoff’s Corporate Strategy, published in 1965.  “This book represented a kind of crescendo in the development of strategic planning theory, offering a degree of elaboration seldom attempted since,” Henry Mintzberg later observed.

Unstintingly serious, analytical and complex, Corporate Strategy, had a highly significant impact on the business world.  It propelled consideration of strategy into a new dimension.

”Strategic management is a comprehensive procedure which starts with a strategic diagnosis and guides a firm through a series of additional steps which culminate in new products, markets and technologies, as well as new capabilities,” said Ansoff.  “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 addition of new product-markets, divestment from some old ones, and expansion of the present position.”

While the end product was simple, the processes and decisions beforehand produced a labyrinth followed only by the most dedicated of managers.  Ansoff’s sub-title was ‘An Analytical Approach to Business Policy for Growth and Expansion’.  The book provided a highly complex “cascade of decisions”.  Analysis – and in particular gap analysis (the gap between where you are now and where you want to be) – was the key to unlocking strategy.

The book also brought the concept of synergy to a wide audience for the first time.  Today, the word is over-used and much abused.  In Ansoff’s original creation it was simply summed up as “the 2+2=5” effect.  In his later books, Ansoff refined his definition of synergy to any ‘effect which can produce a combined return on the firm’s resources greater than the sum of its parts’.

One of us (Stuart) interviewed Ansoff in the late 1980s.  He recounted his colorful start in life – born in Vladivostock to a Russian mother in 1918 – and how the search for inspiration had included a case of whisky and seclusion.  By then Ansoff was fighting an intellectual rearguard action.

While Corporate Strategy was a notable book for its time, it produced what Ansoff himself labeled “paralysis by analysis”: repeatedly making strategic plans which remained unimplemented.

“Strategic planning was a plausible invention, and received an enthusiastic reception from the business community.  But subsequent experience with strategic planning led to mixed results.  In a minority of firms, strategic planning restored their profitability and became an established part of the management process.  However a substantial majority encountered a phenomenon, which was named ‘paralysis by analysis’: strategic plans were made but remained unimplemented, and profits/growth continued to stagnate,” he wrote.

Undaunted, Ansoff looked again at his entire theory.  His logic was impressively simple – either strategic planning was a bad idea, or it was part of a broader concept which was not fully developed and needed to be enhanced in order to make strategic planning effective.  Characteristically, he sought the answer in extensive research.  He examined acquisitions by American companies between 1948 and 1968 and concluded that acquisitions which were based on an articulated strategy fared considerably better than those which were opportunistic decisions.

Reinforced by his conviction that strategy was a valid, if incomplete, concept, Ansoff followed up Corporate Strategy with Strategic Management (1979) and Implanting Strategic Management (1984).  In each of which he sought a broader concept which would include strategic planning and would assure effective implementation of strategic plans.

Using the concept of strategic management, Ansoff formulated a Strategic Success Paradigm which specifies conditions which optimize a firm’s profitability.  This paradigm (the result of “fifteen years of sweat, tears and smiles and occasional flashes of creativity”) has five key elements:

  1. There is no universal success formula for all firms.
  2. The driving variable which dictates the strategy required for success of a firm is the level of turbulence in its environment.
  3. A firm’s success cannot be optimized unless the aggressiveness of its strategy is aligned with the turbulence in its environment.
  4. A firm’s success cannot be optimized unless management capability is also aligned with the environment.
  5. The key internal capability variables which jointly determine a firm’s success, are: cognitive, psychological, sociological, political and anthropological.

Being aware of the spotty record of strategic planning, Ansoff (with the assistance of his graduate students) devoted the next 11 years to empirical validation of the Success Paradigm.  The paradigm was tested in over 500 firms in the US, Japan, Indonesia, Algeria, Abu Dabhi, Australia and Ethiopia.  The statistical results gave strong support to the paradigm.  Ansoff translated the paradigm into a diagnostic instrument, called ‘Strategic Readiness Diagnosis’ and used it in his consulting practice.

Today, Ansoff’s part in the development of strategy is somewhat neglected.  Given that we live in the era of Big Data it is ironic that a man who did so much to champion serious analysis is overlooked

Resources
Igor Ansoff’s books don’t make for light reading, but they were hugely influential. They include, Corporate Strategy (McGraw Hill, 1965);
Strategic Management (Macmillan, 1979); and Implanting Strategic Management (2nd edition Prentice Hall, 1990).

This was originally published in What we mean when we talk about strategy by Stuart Crainer and Des Dearlove (Infinite Ideas, 2016).

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