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16.05.07

The Strategy Paradox

I stumpled upon a new book on strategy written by Michael Rynor via the Innovation Weblog. The first chapter of the book can be downloaded. Rynor describes his point of view:

The strategy paradox, then, arises from the collision of commitment and uncertainty. The most successful strategies are those based on commitments made today that are best aligned with tomorrow’s circumstances. But no one knows what those circumstances will be, because the future is unpredictable. Should one have guessed wrong and committed to the wrong capabilities, it will be impossible to adapt — after all, a commitment that can be changed was not much of a commitment. As a result, success is very often a result of having made what turned out to bethe rightcommitments (good luck), while failed strategies, which can be similar in many ways to successful ones, are based on what turned out to bethe wrong commitments (bad luck). In other words, the strategy paradox is a consequence of the need to commit to a strategy despite the deep uncertainty surrounding which strategy to commit to. Call this strategicuncertainty. … Perhaps more controversially, applying the principles of Requisite Uncertainty implies that CEOs should not see their role in terms of making strategic choices — that is, commitments. Rather, they should focus on building “strategic options,” that is, creating the ability to pursue alternative strategies that couldbe useful, depending on how key uncertainties are resolved.

Strategy pardoxes are not new to management literature. For example, Danny Miller describes his view on the strategy paradox from another (interesting) perspective:

The paradox, of course, is that his [Icarus’] greatest asset led to his demise. And that same paradox applies to many outstanding companies: their victories and their strenghts so often seduce them into the excesses that cause their downfall. Success leads to specialisation and exaggeration, to confidence and complacency, to dogma and ritual.

However, more important, I don’t necessarily see a contradiction between commitment and uncertainty. Rather, it is crucial on what considerations commitment is based on. If commitment is a clear understanding of what the company can be best at, instead of a definition of a plan or goals, then commitment and uncertainty can be reconciled. In his book Good to Great Jim Collins introduces the Hedgehog concept, which describes the kind of thinking that I have in mind:

To go from good to great requires a deep understanding of three intersecting circles translated into a simple, crystalline concept: - What you can be the best in the world at
- What drives your economic engine
- What are you deeply passionate about

In other words, such a commitment reflects the essence of a company (resources, capabilities, passion, learning) developed in a permanent dialogue. Most executives are well aware that uncertainties exist and that they are unpredictable. The problem of commitment and uncertainty arises when the hedgehog concept is build on uncertain opportunities in which the company has to invest in. If these opportunities fail, then the company most probably do the same. On the other hand, if the company understands its essence, it will manoeuvre through uncertainties as it has further developed its already existing strenghts.

There may be times, when also such an approach fails, for instance when an entire industry is breaking down. But even then, a company can redesign its commitment. As did Philip Morris when they redefined its hedgehog concept from a tobacco company to a not-so-healthy consumables company (triggered by a report from the Surgeon General’s Office that linked cigarettes with cancer).

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