Why Most People Are Wrong about What's Strategy?

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by: Idris Mootee

an interesting except from an recent McKinsey interview with Prof
Richard Rumelt of UCLA’s Anderson. I’ve met with him once many years
back in a strategy roundtable. We share very similar views on strategy.
He is very well respected in our field and early in 1972 he became the
first person to uncover a statistical link between corporate strategy
and profitability. Here are some interesting insights:

Most corporate strategic plans have little to do with strategy. They
are simply three-year or five-year rolling resource budgets and some
sort of market share projection. Calling this strategic planning
creates false expectations that the exercise will somehow produce a
coherent strategy.

Plans are essential management tools….. plan coordinates the deployment of resources–but it’s not strategy. These resource budgets simply cannot deliver what senior managers want: a pathway to substantially higher performance.

– There are only two ways to get that. One, you can invent your way to success. Unfortunately, you can’t count on that. The second path is to exploit some change in
your environment–in technology, consumer tastes, laws, resource prices,
or competitive behavior–and ride that change with quickness and skill.
This second path is how most successful companies make it. Changes,
however, don’t come along in nice annual packages, so the need for
strategy work is episodic, not necessarily annual.

– Many people think the solution to the strategic-planning problem
is to inject more strategy into the annual process. But I disagree. I
think the annual rolling resource budget should be separate from
strategy work. So my basic recommendation is to do two things: avoid
the label “strategic plan”–call those budgets “long-term resource
plans”–and start a separate, non-annual, opportunity-driven process for

– (any strategy starts with identifying change) Here’s an example. Right now, the advent of 3G cellular
technology makes it possible to deliver streaming video over mobile
phones. Cell phone makers, cellular carriers, and media companies all
need to develop strategies for exploiting this change. Even though
these changes have long-term consequences, companies need to take a
position now. By “take a position” I mean invest in resources that will be made more valuable by the changes that are happening.

– Strategic thinking helps us take positions in a world that is confusing and uncertain.
You can’t get rid of ambiguity and uncertainty–they are the flip side
of opportunity. If you want certainty and clarity, wait for others to
take a position and see how they do. Then you’ll know what works, but
it will be too late to profit from the knowledge.

– (So how does a company take a good position?) One big factor is a predatory posture focused on going after changes.
I saw an interesting pattern. Most executives easily explained how
companies became market leaders: some sort of window of opportunity
opened, and the leader was the company that was the first to
successfully jump through that window. Not exactly the first mover but
the first to get it right. But when I asked these same executives about
their own strategies, I heard a lot about doorknob polishing. They were
doing 360-degree feedback, forming alliances, outsourcing, cutting
costs, and so on. None of them even mentioned taking a good position quickly when the industry changes.

– Then in 1998 I had the chance to talk with Steve Jobs after he’d
come back and turned Apple around. “Steve,” I said, “this turnaround at
Apple has been impressive. But everything we know about the
personal-computer business says that Apple will always have a small
niche position. The network externalities are just too strong to upset
the de facto “Wintel” standard. So what are you trying to do? What’s
the longer-term strategy?” He didn’t agree or disagree with my
assessment of the market. He just smiled and said, “I am going to wait
for the next big thing.”

Jobs didn’t give me a doorknob-polishing answer. He didn’t say, “We’re cutting costs and we’re making alliances.” He
was waiting until the right moment for that predatory leap, which for
him was Pixar and then, in an even bigger way, the iPod. That very
predatory approach of leaping through the window of opportunity and
staying focused on those big wins–not on maintenance activities
–is what distinguishes a real entrepreneurial strategy.

Key takeaway, strategy is about the big opportunity and how well you
are prepared for it. In fact, the last two week my business
partners/fellow strategists were just finishing up on our unique
methodology and framework to help companies to take advantage of
industry change. This is not about strategy or planning, it is about
opportunities scanning and conceptualization — we call it noodleplay.
It is a collaborative innovation program designed to help companies to
identify new revenue opportunities and  stage a predatory posture.
It is about ringing design thinking into business strategy. I can’t tell you how excited we are about this.

Finally, a great quote from Prof Rumelt:

“The primary problem in
corporate strategy is very bad practice. Despite research and teaching
and the best advice of the best consulting firms, large companies tend
to seek size and diversity rather than innovation and value creation.”

Original Post: http://mootee.typepad.com/innovation_playground/2007/08/the-secret-of-s.html