The goal of strategy is to decide what to do in a given situation to achieve a given objective. Basically, strategic decisions comes down to the question “what to do next?”. In environments characterized by uncertainty (defined as objective lack of information), this is no simple question, and several approaches are possible to address it. Two dimensions characterize these possible approaches: prediction and control.
Prediction asks to what extent does my approach rely on a forecast of the future environment. Strong prediction corresponds to either a planning-type approach – I create a detailed prediction of the future before initiating action – or a vision type: I imagine the future and I strive to make this vision a reality. Low prediction corresponds to a more adaptive approach: I do not try to predict the future environment, but instead I move on and I adapt to changes along the way.
Control asks how I can control the evolution of my environment. The over-arching assumption of classic strategy is that the firm has little influence on its environment, which is for the most part given (or “exogenous”). All a firm can do is to find a place in this environment (planning /positioning) or adapt when it changes (adaptation). Hence the importance of the notion of “fit” that the field insists upon (e.g. Michael Porter in 1996). On the opposite side of the spectrum, the field of entrepreneurship observes that a firm can change its environment in profound ways, sometimes from an ex ante defined vision, or through the logic of future-agnostic gradual transformation of the environment. There are many examples of entrepreneurs starting with odds apparently stacked against them and completely transforming their environments: Michael Dell, Richard Branson, Sam Walton, to name just a few.
Many business people seem to operate under the unconscious assumption that they’ll gain a competitive advantage through a careful daily reading of the business press. They won’t. The same goes for fund managers seeking to generate “alpha”: the business press alone certainly won’t get you there.
They’re also unlikely to gain a decisive edge by combining the daily parade of conventional economic data with stale “strategic” frameworks like the BCG Matrix (which dates back to 1968), Porter’s Five Forces (created in 1979), or Value Chain Analysis (introduced in 1985). Anyone who has studied business in the last 30 years – including your competition – uses these. They also probably read the same newspapers and buy the same economic data. In short, the old-school “Business Strategy 101” toolkit is like a white shirt in your closet: always safe, sometimes useful, but not a decisive business edge. Face it: apart from their other limitations (see below), these old strategy models are fully depreciated. How is the unconsidered imitation of commonplace ideas “strategic”?
Fully Depreciated Thinking
There is no clearer path towards creating a strategically autistic culture or organization than by mistaking the very definition of strategy. That’s why to gain a competitive advantage in today’s world, you have to do more. In my view, that “more” starts by gaining an understanding of what actually constitutes business strategy, i.e. understanding the deep, structural forces that bear on the long-term success of firms, and how these forces can be engaged and harnessed. In the classes that I teach at IE, I argue that these deep forces are geopolitical. The metaphor that I use to explain my approach is that geopolitics shapes the climate of business, whereas the daily news and conventional economics – even macroeconomics – simply address the weather of business.
Posted in Methodology & Tools, Theory
Tagged BCG Matrix, culture, demographics, geography, geopolitical alpha, Geopolitics, Geostrategy, Integrated Strategy, non market forces, non-market strategy, Porter's Five Forces, resources & routes, strategic autism, Tactics, technology, Value Chain Analysis