4 Types of Strategy
Do you have a strategy? Is it the right one? Does your organization buy into it?
These are all important questions, often without clear answers. Strategy doesn’t play out in PowerPoint or Excel, but in the real world. We have much less control over it than we would like to admit. Even the best laid plans can go awry.
Albert Camus famously said that ideology should serve people, not the other way around and it is the same with strategy. In truth, to find the one that will serve us best we need to pursue four types of strategy simultaneously.
Many strategies start with a vision. For instance, Herb Kelleher at Southwest Airlines had a vision that air travel could compete on price with ground travel. Therefore his main objective was to become “THE low cost airline” and decision making hinged on that one overriding principle.
Of course, sometimes a clear vision can blind management to market realities, which was the case with Jeffrey Skilling and Enron. Skilling believed that securitization and a quantitative approach could make the company unstoppable. Unfortunately, that same vision (and some financial legerdemain) obscured serious problems that led to one of the great financial meltdowns in history.
Often, a vision has a shelf life. It works for a while and then outlives its usefulness. That was true of Jack Welch’s idea that every business should be number one or two in its category or abandoned. It drove company strategy for a while, until it became clear that the evaluation had as much to do with category definition as it did with success.
Every company needs a vision which articulates its mission and creates a community of purpose. However, a vision is, and will always be, necessary rather than sufficient. A big idea will only take you so far.
Another common strategic path is extrapolation. This is the preferred method of management consultants. You analyze data, identify trends and take them to their logical conclusion.
Some great insights have come from trend analysis. A great example is how Michael Milken realized that even companies with very poor debt ratings seldom actually declare bankruptcy. Therefore, there was a fortune to be made in bonds that were long considered “junk.”
However, the same reasoning can often backfire, which happened to LTCM, a hedge fund run by Nobel prizewinning economists. By believing so strongly that market discrepancies would revert to long term trends, they took on way too much risk. They not only went bust, but almost took the global financial system with them.
A further unintended consequence of extrapolating trends is that you risk missing disruptive innovations. I argued in an earlier post that Rupert Murdoch is doing just that with paywalls and that there are more creative ways to save newspapers.
Inevitably, when you choose to follow one trend you are implicitly choosing to ignore others.
The world is a messy place and unexpected events are bound to occur. When they do, we are often caught off-guard and need to react. This isn’t the slow, deliberate strategy we find in textbooks, but a frantic rush to dodge a bullet.
One of the most famous instances of reactionary strategy is when Microsoft realized that they were missing out on the Internet. In one of the most impressive management feats in modern history, Bill Gates realigned his enormous enterprise to the needs of a connected world and probably saved the company.
Of course, most examples are not quite that dramatic. You don’t need to manage a business for long before you realize that sometimes, despite your best efforts and well laid plans, events will sometimes have to dictate your actions more than you would like.
It could be argued that Andy Grove’s famous move to bet Intel’s future on microprocessors was, in fact, an emergent rather than a planned strategy. In his book, Only the Paranoid Survive, he recounts that his decision was largely based on changes in production already made by line managers.
Of course, sometimes potential strategies fail to emerge because they conflict with planned strategies. This was the case with Xerox, whose famous PARC lab created both the graphical user interface and the Ethernet, but failed to capitalize on both of them. These have, of course, become core components of our information age.
Some companies, such as Google and 3M, are so ensconced in emergent strategy that they seem to be completely chaotic. They give employees time to work on projects of their own invention and see what comes of it. According to conventional strategic principles, they seem to have no strategy at all.
An enterprise without a vision is an institution without a soul. We must follow trends, react to market events and be aware of emergent opportunities that arise. Pursuit of one type of strategy to the exclusion of others is not only foolish, but dangerous. We must be able to walk and chew gum at the same time.
However, any organization is a system of gradients, not absolutes, and I strongly suspect that emergent strategies are greatly increasing in importance. Much like Total Quality Management revolutionized manufacturing decades ago, it seems to me that information technology is having a similar effect on strategy.
Authority is diminished in correlation to the increase in labor market efficiency. As corporate value is increasingly driven by highly skilled people who are operating in poorly understood areas, the management challenge is often more to figure out what is going on rather than to point the direction forward.
More than we’d like to admit, the lunatics really do run the asylum.