On Perishability of Strategy
I was intrigued by this tweet from Prof. Clayton Christensen, on the perishability of strategy and I started thinking. The notion is to me – intuitively – short-lived, but then I realized and remembered that in the corporate reality that is a less evident truth. As a matter of facts companies create all sort of excuses not to change their past winning strategy.
Any strategy is (at best) only temporarily correct.
— Clayton Christensen (@claychristensen) May 8, 2017
Our first step is introducing the concept of Dominant Design, because it has much to do with expiration date of the strategic process. DD is the set of technological features, which become standards for an industry and/or a marketplace. Prior to being a DD or standard, there is a “window of opportunity” with low barriers to entry, and also a high level of natality and mortality of companies. When tech players follow a dominant design, there is empirical evidence that their probability of survival in the industry grows. So they assume they are following a good an long-lasting strategy. Nevertheless Dominant Design also implies that most players’ innovation focus is on “optimizing the standard”, and therefore their innovation efforts are limited to components. Whereas true tech leaders aim at innovating at architectural level, within the technological space defined by the DD. Yet Dominant Design also opens the door to disruption from outside industry. In this sense DD provides a certain degree of technological stability, and therefore it exercises a gravitational pull on strategy, by becoming almost the whole focus of the process. And while it seems to extends the “best-by” date of strategy, it actually reduces it.
Emergent vs. Analytical Strategy
In order to reason about the strategic process we need to think about strategy first. Many of us learned at school that strategy is a game of chess: ability to predict the moves of your competitor, clear and defined outcomes, with a foreseeable and anticipated future. Albeit correct and very widespread, this is not the only type of strategy. This is what we call Analytical Strategy: it requires facts before analysis. In consequence, it is based on a process of analysis of data and reports, on the basis of which we predict (!) the future. Once the picture is clear, a strategy can be formulated and planned, before resources are allocated and execution is controlled in a full-scale launch. While this is also the dominant type of strategy approach in large corporations, and it has been a strong corporate and business pillar of the second half of the XX century, it’s also not the only – and currently most effective – way of formulating a strategy. The problem with Analytical strategy, is that we often fail to recognize its limitations, while we really live by its dogmas:
- It is common practice to refer to good and bad strategy as if they were absolute concepts: but they are not. A good strategy is a specific vector, which is good as long as it delivers on the expectations by building on the resources and capabilities of the company. Just think of how many consumer electronics companies are failing because they are trying to mimic Apple’s strategy. What works for Apple (good strategy) is most surely not working for their competitors (bad strategy).
- We can’t predict the future, and through foresight we can develop future scenarios. The future is not predictable and the level of vagueness and haziness in business – also thanks to digitalization – is much higher than in the late 90s.
- Past data serve the purpose of taking a snapshot of the past, while they are used as a solid base of what is going to happen in the future.
- Competitive spaces are much wider, categories are blurring we don’t event know where true competition is coming from.
So is the Analytical, Perishable or not?
We are under the impression is not, because it’s the most convenient notion. As a matter of facts the strategic process in large corporations is a long and difficult one. It requires formal and informal settings, a combination of top-down and bottom-up inputs, buy-in, sell-out. It is also a process, which is biased by the past successes of the company, a large quantity of past data that are expected to predict the future (Caveat: seldom they do). It mostly focuses on optimizing the firms’ operations around the dominant design, and growth is defined in terms of new geographic markets, new components, vertical integration and, sometimes, new technological architecture. And then the part of resource allocation and control takes over. The strategic process is long, heavy duty, resource-intense, almost painful. Rapidly changing strategy for a large corporation is nearly impossible and almost inadvisable. But the truth to the matter is that, the context – at technological and consumer level – is changing very rapidly. The process of digitalization is changing industries, very rapidly and the more firms wait to update their strategy the riskier it becomes. Think of an industry like lighting, with clear dominant design, and industry wide architectural innovations. Very predictable. At least until now. The future is foggy and uncertain, under the pressure of Internet of Things, Connected Homes, Industry 4.0 and so on. Analytical Strategy does not come with a “best before” label, but it should.
At the opposite of the continuum stands the Emergent strategy, the formulation process based on action-before-facts. The process follows the following steps:
- Build/ Prototype
- Slowly Scale
And while these steps seems derived by a design thinking book, the idea of “emergent” formulation was independently developed in 1978 by Minzberg, to propose an enterprise growth concept which is more discovery-centric rather than directional. Emergent strategy is nowadays very often associated to situations of high ambiguity and high uncertainty, and used in Agile, Lean and – quite naturally – in association with Design Thinking. Emergent is perishable by design: it is based on the notion of “trial and repeat” and it seats in a boundary where the domain of strategy and tactic are very blurred.
The more turbulent the market place, the older the dominant the design, the more perishable the strategy. And while Emergent is short-lived by design, we are often under the impression that the Analytical one is more long-lasting, especially when based on a long past track record. Also it does not come with a “best before” label. Until the day we wake up at Kodak, Blockbuster and Nokia……