The Evolution of Strategy

M Manjunath Shettigar

While Jack Welch killed the strategic planning process at GE a generation ago, many managers
continue to use outdated processes.

When we think of great strategists in history, from Sun Tzu to Alexander the Great to Napoleon
to Patton, we think of master chess players, leaders who personify timeless principles and can
think two or three moves ahead.

Strategy is the sexy part of business, where boring Word documents and endless Excel
spreadsheets give way to glorious PowerPoint decks. Here drudgery ends and corporate generals
can sit back and formulate their plans for world domination.

For better or worse, those days are over. As Rita Gunther McGrath explains in her new book,
The End of Competitive Advantage, strategy is now a game that looks more like World of
Warcraft than the game of kings. You never actually win, but are always questing, gaining new
skills and resources along the way and continually seeking the next challenge.

The Last Thing We Need Now Is A Vision

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 decisions were undertaken based on that one
overriding principle.

However, 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 Welchs 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 true success.

And thats the problem with a vision, its almost impossible to distinguish it from a
delusion. Furthermore, it is prone to survival biaswe remember the few that succeed, but the
legions of failures are mostly lost to history.
The Rise and Fall of Strategic Planning

When Alfred Sloan conceived the modern corporation at General Motors GM -0.16%, he based
it on hierarchical military organizations. Orders flowed downwards and your rank determined
your responsibility.

Perhaps not surprisingly, business strategy started to look more like military planning, with thick
books filled with reams of market intelligence, tactics and procedures. Middle managements
primary function was to execute the plan and compensation reflected performance against
predetermined objectives.

By the 1980s, the seams began to show. When Jack Welch took the helm of General Electric
GE -0.93% he largely dismantled the strategic planning process, because as he said at the time,
the books got thicker, the printing got more sophisticated, the covers got harder and the drawing
got better, but none of that improved how the company performed.

Today, planning has become even less tenable. As the speed of business continues to accelerate
and technology cycles outpace corporate planning cycles, the false certainty that planning
engenders is becoming an impediment to, rather than a tool for, attaining objectives.

Roger Martin put it best in an article for The Harvard Business Review: strategy is not planning.

Emergent Strategy

When commandos arrived at Osama bin Ladens compound in Abbottabad, Pakistan, the first
helicopter got caught in an air drift and had to crash land, destroying not only the element of
surprise, but also their plan for entry (the second helicopter was supposed to drop soldiers on the
roof of the villa).

However, the mission did not have to be scrapped, because todays military operations are not
dependent on plans, but commanders intent a clear and concise statement of goals and the
parameters within which they must be met. Thats also the idea behind what management guru
Henry Mintzberg calls emergent strategy.

Andy Groves famous move to bet Intel INTC +0.58%s future on microprocessors was, in fact,
an emergent rather than a planned strategy. In his memoir, Only The Paranoid Survive, he
recounts that his decision was largely based on changes in production already made by line
managers.

On the other hand, Xeroxs failure to capitalize on the inventions created at its PARC division
exemplifies the importance of recognizing how developments lower down in the organization
can and should (but alas, often dont) affect decision making at the top.

Increasingly, managements role is not to organize work, but to direct passion and purpose. In a
digital world, there is truly no need for it to be so lonely at the top.
Bayesian Strategy

Mintzberg formulated his ideas about emergent strategy in the 80s, when it became clear that
Peter Druckers vision of the knowledge economy had come to fruition. However, today
technology is changing how corporations learn. Whereas before, knowledge was exclusively in
the human domain, now machines are performing cognitive tasks.

We can no longer afford to wait for statistically significant evidence to filter in, analyze it, form
a consensus and then act. We cant even afford a truncated version of the same. In this new age
of big data analysis and the Web of Things, information comes at us real time and so does the
competition.

Even failing fast and cheap is becoming too slow and expensive. As Rita Gunther McGrath
writes, Prediction and being 'right' will be less important than reacting quickly and taking
corrective action. We must discard the fantasies of false certainty and learn to become less
wrong over time.

Strategy needs to evolve. In truth, the cult worship of the visionary was never about strategy, but
control and control has always been an illusion. We need to update strategy to a more Bayesian
process where there are no certaintiesonly probabilitiesthat evolve and change in real
time. We need to do so as well.

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