After having completed the first cohort of Write of Passage in summer 2019, I was all excited to jump on the newsletter bandwagon. Fast forward to today, I have failed miserably and have nothing to show for. Time to fix this :)
I am a strategy consultant at The PNR. We help people and organizations grow by using an iterative approach to strategic planning in order to define and execute strategy. My goal is to share with you what I have learned on the field and my current reflections on strategy via a monthly newsletter.
Coming back from Christmas, I was frustrated because I felt most of the management team we work with use a mix of magical rites and guesswork to think about their strategy. We are there to help, but inertia is strong.
I am a proponent of determining the context and then apply the right tool for the right job. Wardley Mapping is an effective tool to do that and create situational awareness. However, we did not have much success with it so far, because the learning curve is quite high.
I was back to the "thinking board". I was looking for a framework that could help in determining the business context in which a company and its business units operate.
I found what I was looking for by turning to the history and evolution of strategy.
Strategy: A History [Video] by Lawrence Freedman (2013)
Beside its use in the military, the use of strategy in business is relatively new. Strategy as a function did not really exist before the 60s. In Strategy: A History, Freedman takes in the Bible, the Greeks, Sun Tzu, Machiavelli, and Satan before moving to military, political and corporate strategy.
The main thesis is that strategy starts with an existing state of affairs and only gains meaning by an awareness of how it can help move to the next stage, rather than obtain a permanent conclusion. As such, strategy has to be flexible, adaptive and non-linear.
The Evolution of Strategy (Over Six Decades and Thirty Models) [PDF] by Marcel Planellas (2017)
This paper gives an overview of the evolution of strategy and its thinkers over the last 60 years. Useful before diving deeper.
As of the Industrial Revolution, with the appearance of the first factories, the main concern of management science was to improve production processes and organisational structure with a view to greater efficiency. In 1962, Alfred Chandler published the book Strategy and Structure, in which he analysed the historical behaviour of large American enterprises and discovered that it is structure that follows strategy.
The concept of “strategy” became consolidated within modern management theory and continued to develop in the following years. In the 1960s, strategy was largely equated with corporate planning; in the 1970s, strategy was about diversification and portfolio planning; the 1980s are characterized by a focus on core capabilities; the 1990s by the development of less analytic, more people oriented approaches to management; the 2000s were all about innovation and new business models. Some say that the 2010s are defined by the end of sustainable advantage and the 2020s by platforms and ecosystems.
Competition and Business Strategy in Historical Perspective [PDF] by Pankaj Ghemawat (2002)
This paper describes the evolution of ideas about business strategy from the beginnings of the field through the second half of the 1990s and how they came to be influenced by competitive thinking.
In the First Industrial Revolution (mid-1700s to the mid-1800s) firm had an incentive to remain small and to employ as little fixed capital as possible because they had limited influence on competitive outcomes. The Second Industrial Revolution (mid-1800s to early 1900s) saw the emergence of strategy as a way to control market forces, because of improved access to capital and credit, along with the development of mass markets. Mass markets encouraged large-scale investment to exploit economies of scale in production and economies of scope in distribution. The two wars encouraged the use of formal strategic thinking to guide management decision.
It was not until the late 1950s and 1960s that corporations started to consider competition as a factor in planning, because wartime destruction led to excess demand, which limited competition as firms rushed to expand capacity. In the 1960s, diversification and technological changes increased the complexity of the strategic situations that many companies faced, leading to the rise of quantitative tools and qualitative framework to evaluate and compare many different types of businesses. The 1970s were about adding a historical dimension to portfolio analysis, industry attractiveness and competitive position. Static tools came under attack in the late 1970s because they focused on analytic detachment rather than the insight that comes from 'hands on experience' and on short-term cost reduction rather than long-term development. Since then, dynamic thinking (game theory, systems dynamics and disruptive technologies) has absorbed the bulk of strategists attention.
Evolving Ideas about Business Strategy [PDF] by Pankaj Ghemawat (2016)
This paper is a follow-up to Competition and Business Strategy in Historical Perspective. Looking back, the period through the mid-1990s is characterized as "strategy heydays" with consulting firms trying to come up with the next big idea to be sold. Nowadays, consulting firms focus more on their capabilities and long-term engagement with clients.
Most of the future development in strategic thinking might be incremental rather paradigm-shifting. According to BCG, there are 81 important frameworks. Focusing on repackaging basic ideas or simply sorting through the existing frameworks, might yield more results than trying to create new ones. The author argues that we can sort through the frameworks by using logical, theoretical and empirical screens.
Your Strategy Needs a Strategy [Article, Book] by Martin Reeves (2012)
In this book, BCG strategy experts make sense of all the different and competing approaches to strategy. They provide a tool called the strategy palette, which help leaders match their approach to strategy to the context of their businesses. Context is dependent on three factors:
- Predictability (can you forecast it?)
- Malleability (can you, either alone or in collaboration with others, shape it?)
- Harshness (can you survive it?)
Combining these dimensions reveals five distinct environments, each of which requires a distinct approach to strategy and execution:
- Classical: Be big;
- Adaptive: Be fast;
- Visionary: Be first;
- Shaping: Be the orchestrator;
- Renewal: Be viable.
They then provide a table that summarizes the key elements of the strategy palette and specific examples of companies using the five approaches.
The key is that any business goes through a life cycle, each stage requiring a different approach. Businesses are usually created in the visionary or shaping quadrants and tend to migrate through adaptive and classical quadrants, before being disrupted by innovations and entering a new cycle. Business leaders play a critical role in combining multiple approaches to strategy, in putting the right people in place to execute it and in selling the narrative externally and internally.
In conclusion, we saw that strategy is an integral part of the nature of an organization. It has evolved quite a bit, based on a business environment that is changing faster and becoming more uncertain and complex. As such, it is important to choose the right approach to strategy. While we have the tools to sort through the frameworks, it is still a challenge to create shared situational awareness, meaning that two or more people have a common mental image of what is happening and what is likely going to happen in the future. We will explore shared situational awareness in the next issue.