New Realities of Strategy

On his journey around the wilds of strategic management in Strategy Safari (co-authored with Joseph Lampel), Henry Mintzberg identifies ten different schools of strategy formation.

The first five are:  design — fitting internal situation of the organization with the external environment; planning – formal planning from analysis of situation to strategy execution; positioning – influenced by the ideas of Michael Porter – strategy depends on the positioning of the firm in the market and within its industry; entrepreneurial – strategy driven by the leader; and cognitive – delving inwards into the minds of strategists.

The second five are: learning – strategy as an emergent process, as people come to understand a situation and the organization’s ability to deal with it strategy emerges; power – strategy from power games inside and outside the organization; cultural – the formation of strategy is tied to the social force of culture; environmental – strategy dependent on events in the environment and the company’s reaction; and configuration – part of a transformational process.

The trouble is that, in practice, modern thinking about strategy does not fit neatly into one or another of the ten schools. More commonly, recent approaches to strategy formation cut across a number of the schools — whether it is resource-based thinking, chaos and evolutionary theory, revolutionary strategy, or strategic maneuvering. Neatness RIP.

Functional divides RIP

These are troubled times for the study and practice of strategy. Old truths are being relentlessly questioned.  Neat divides are coming tumbling down.

As Columbia Business School’s Rita McGrath told us: “Strategy is really struggling both in the field and in the real world.  You are seeing a bit of a gap. Porter’s Five Forces, the BCG Matrix, SWOT analysis, a lot of those tools came from an era when competition was much less vigorous. They are great tools in the context in which they were developed.  If you’ve got a stable industry structure and you’ve got things that you can actually measure they still work.  But, today we’re seeing industries competing with industries, different arenas where competition manifests itself. Strategy, entrepreneurship and innovation are all bleeding into each other.”  There is functional blood on the ground.

Strategy embraces different points of view

“What issues should senior executives consider in thinking about a new strategy and how should they think about them?” asks Costas Markides of London Business School. “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.”

The trouble is that in many corporations different points of view are notable by their absence.  This is something Gary Hamel and CK Prahalad lamented in their work in the 1990s, arguing that strategy has tied itself into a straitjacket of narrow, and narrowing, perspectives: “Among the people who work on strategy in organizations and the theorists, a huge proportion, perhaps 95 percent, are economists and engineers who share a mechanistic view of strategy.  Where are the theologists, the anthropologists to give broader and fresher insights?” they asked.  Where, indeed.

Hamel argues that it is only if we give greater consideration to the emergence of strategy that we will be able to create strategies which succeed.

Hamel maps out five preconditions for the emergence of strategy. First, the entire organization need to have a voice in creating strategy.  It is not the sole preserve of management but “pluralistic and participative”.  Second, discussion concerning strategy must cut across industries and organizations so that knowledge can be combined in new ways.  Third,  Hamel believes that people will embrace change when they identify opportunities for rewards and growth.  (This also explains the redundancy of downsizing as a policy.)  Finally, companies must carry out some market experimentation to determine which new strategies work.

Strategy demands communication

Says Chris Zook of Bain & Co: “ 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 out of five employees in the average business say they have any idea what that is. And if you imagine 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.”

Strategy is improv

Stanford’s Kathleen Eisenhardt has looked at the significance of improvisation in the strategic decision making process. Eisenhardt argues that researchers into strategic decisions have tended to follow three basic approaches.  First is what she labels, “bounded rationality”.  This approach ignores the influence of elements such as intuition, preferring a narrow, logic-based perspective.  The second approach is termed “power and politics”.  This regards strategy as emerging from conflict and machinations among senior managers.  Once again the emotional element is played down.  The final approach is the “garbage can”.  This suggests that “decision making occurs through the random meeting of choices looking for problems, decision makers looking for something to decide, problems looking for solutions, and so forth”.  Once again this is only partly the case and certainly practically unhelpful.

Strategic decisions, Eisenhardt suggests, need a new and more dynamic model: improvisation.  By improvisation she does not mean a spur of the moment free for all, but something altogether more structured.  She says that true improvisation has two characteristics.  The first is that it requires that people communicate intensely with each other.  And such communication belongs to the moment.  The second key characteristic is that “improvisation involves performers relying on a few, very specific rules. There are not many rules, but those that do exist are religiously followed”.

Backed by research, improvisation is a convincing metaphor.  The question must be, how helpful the metaphor can be in practice.

Strategy is messy

Henry Mintzberg is among those who have most loudly questioned the assumption that strategy making can be formalized.  The left-side of the brain has dominated strategy formulation with its emphasis on logic and analysis.  Overly structured, this creates a narrow range of options.  Alternatives which do not fit into the pre-determined structure are ignored.  The right -side of the brain needs to become part of the process with its emphasis on intuition and creativity.  “Planning by its very nature,” concludes Mintzberg, “defines and preserves categories. Creativity, by its very nature, creates categories or rearranges established ones. This is why strategic planning can neither provide creativity, nor deal with it when it emerges by other means.”

World changing strategies grow as freely as weeds in carefully tended gardens.  Root them out nor let them flourish.

Resources
Kathleen Eisenhardt, ‘Strategic decisions and all that jazz’, Business Strategy Review, Autumn 1997