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4 Types of Strategy

2010 November 28
by Greg

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.

Visionary

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.

Extrapolation

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.

Reactionary

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.

Emergent

Not all strategy can be planned, but sometimes simply emerges from normal operations.  This kind of strategy, which Henry Mintzberg dubbed emergent strategy, is often elusive.

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.

Muddling Through

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.

– Greg

13 Responses leave one →
  1. November 29, 2010

    Great stuff, as usual Greg. Keep it up.

    [Reply]

    Greg Reply:

    Thx:-)

    [Reply]

  2. Phuong permalink
    December 22, 2010

    Thank you very much, Greg!

    Warm wish,

    Phuong

    [Reply]

    Greg Reply:

    Have a great New Year Phuong.

    – Greg

    [Reply]

  3. December 22, 2010

    Greg,

    Magnificent post.

    A number of years ago I started asking executives during strategy sessions to recite either the Vision or the Mission of any company for which they had ever worked. No takers. Ever. Every one of the executives had spent hours, sometimes days, developing a Vision and a Mission Statement at companies large and small. They were all promptly forgotten.

    I take a different tack today. I go straight to goals. As we develop a strategy I continually ask, “Why are you doing this?” Eventually, a coherent reason emerges. In the last two cases, one was “My current business model is unsustainable.” That goes in red at the top of every page of the strategy. The other was, “We need to sell the company in ten years as a patrimony for our children.” Again, red, top of page.

    You are correct, ” an enterprise without a vision is an institution without a soul.” I also believe firmly that an enterprise without a focus is an institution without a future. The vision eventually develops from the focus.

    Regards,

    Bill Heath

    [Reply]

    Greg Reply:

    Thanks, Bill. Have a great New Year!

    – Greg

    [Reply]

  4. February 13, 2011

    Hi Greg,
    As you talk about Strategy, I fervently remember our discussion about the works of Henry Mintzberg. I have written an article recently on this in my blog. I would love to hear your thoughts on this. http://www.venkinesis.in/2011/02/social-media-strategy-couples-in.html
    Venky´s last blog post ..“Social Media Strategy” – Couples in nuptial bliss or strange bedfellows

    [Reply]

    Greg Reply:

    Venky,

    I think you’re right and “social media strategists” are becoming scarce as social media become just another way to implement overall strategy.

    – Greg

    [Reply]

    Venky Reply:

    Thanks for your comments, greg!
    Venky´s last blog post ..“Social Media Strategy” – Couples in nuptial bliss or strange bedfellows

    [Reply]

    Greg Reply:

    No problem:-)

  5. Esther permalink
    March 9, 2012

    Thanks for your article:)

    [Reply]

  6. Esther permalink
    March 9, 2012

    Which makes me confused is that, are these the”types of strategy” or the”stages of strategy”.I ‘m not very clear about this.Could you please explain some for me?

    [Reply]

    Greg Reply:

    They are four different approaches, generally they are not pussued by the same organization.

    Greg

    [Reply]

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