Despite the obvious importance of an excellent strategy to the success of the organization, and decades of academic research on this question, scholars disagree very much about what strategy is.
From strategy as positioning to strategy as vision, there is a diversity of definitions, all of them with the pretense of legitimacy. The lack of an acceptable definition has opened the way for the invasion of “sexy” slogans and concepts that only add to confusion and a certain sense of uncertainty.
It is not surprising, then, that in a recent editorial in "The Economist" it was stated that no one really knows what strategy consists of.
Academics are not the only ones who do not know. If we asked many consultants and executives, they would answer us saying that strategy is the way to act to achieve the company's objectives.
This definition is correct but so general that it is meaningless. You can put everything under this umbrella so that it becomes commonplace.
It goes without saying that this state of affairs is unsatisfactory. Perhaps there are few examples to prove it such as that in November 1996 the most prominent academic in the strategic discipline, Michael Porter, published in the Harvard Business Review an article entitled “What is strategy?” Within a few months, the other great strategist Gary Hamel, published in the same magazine "In search of strategy." All this happened after having spent more than 40 years studying and researching this question and proves that there is a high degree of confusion about something that is crucial, vital, for business decisions.
Of Porter's five forces, a fundamental tool for understanding the competitive environment and the vectors that influence companies in the same sector from the outside, the strategic analysis has delved into investigating why individual companies obtained differentiated competitive advantages within the same sector.
For this reason, and because it is more in line with the economic theory of the company, the study of strategy advanced towards the paradigm of strategy based on the resources it possesses, or those it must acquire to compete: the "Strategic Intent" of Hamel and Prahalad, which leads to "Essential Competencies" or basic, a concept coined by these authors in their now classic "Competing for the Future".
Gary Hamel has continued to work and research these questions and in 1998 he writes that although we all know that we are in a new economy, in an industrial revolution as or more profound than the one that the Modern Age brought us, the strategic question is who will benefit, who it will benefit from it. "Which companies will sail in the new winds of change and which ones will run aground on cliffs of irrelevance."
The strategy industry - Hamel adds - all consultants, business school professors, authors and executives - have a small and unspeakable secret. Everyone recognizes a strategy when they see it.
When the case method is used, teachers and students show admirable or ridiculous strategic designs, but they are always “ex-post” explanations of what has happened and examples of competitive successes or failures are strikingly attractive. We know how to collect butterflies by pinning them but cases and libraries are museums of dead specimens.
Simply put, we identify strategy as "a thing", something that someone has identified and collected. Others assimilate strategy to planning but planning does not produce strategy, it produces plans as Mintzberg has shown. Those of us who work in the "strategy industry" know very little about how it is created, how it is designed.
As Mintzberg asserts, strategy "emerges" but this emergent nature should not prevent us from discovering precisely what are the processes or conditions that make it possible.
If we go into the concept of companies as living and complex systems, surely we will not be able to say that the strategy arises from the top of the organization, but neither that it is the result of random variations. Neither the operation of the Stock Exchange nor the Internet could be possible with top-down designs.
What happens in these cases is called “order without careful or detailed intervention” and this could be the goal of the strategic process. Like all manifestations of complexity, strategy stands on the border between perfect order and total chaos, between the most absolute efficiency and blind experimentation, between autocracy and adhocracy. If we believe any of this, we will agree that it has very profound implications for how we think strategically. Gary Hamel tells a story about how human beings developed their taste for roast meat: “One day a wild pig went into a hut and was struck by lightning; the hut began to burn and a human being stirring the charred remains, touched the pig, licked his finger and voila!Many strategic researchers also stir up the ashes and say to themselves: "This is how an idea manages to make its way into a sclerotic organization, for months or years and finally succeeds in changing the company's strategy." But perhaps we could do more to make the path that goes from intuition to formalized strategy.
It is possible that we can substantially increase the chances that when we stumble upon something or have an idea, we will translate it into deliberate action.
For Gary Hamel there are five processes that can help us in this endeavor:
- New experiments. Tackle small projects with controlled risks assumable by the organization. New passions. Release the deep meaning of discovering that almost all human beings have. We only oppose change when it does not offer us new opportunities. There is a lot of talk now about ROE, but we should also do it about return on emotional investment. New voices. Incorporate new “genetic material” into the strategic process, which means that the top management no longer has a monopoly on strategic creation. It has to include those who are "on the border", at the limits of the organization; a plural and deeply participatory process. New conversations. Create strategic dialogues that span the usual organizational and sectoral boundaries,increases the likelihood that new strategic insights will emerge.
Too often, and especially in large corporations - conversations petrify over time, the same people talking to each other, about the same issues year after year. When previously isolated knowledge is juxtaposed, opportunities arise to see new strategic lines.
I do not think it is mere chance to see how the work and research of Gary Hamel and Peter Senge, founder of the SoL, converge. An interview with Gary Hamel appears in the Spring 2000 issue of the SoL magazine “Reflections”.
He affirms that he is more of a theorist than an empiricist; that your job is to think about how the world is organized. What I do, Hamel continues, is help develop a new set of lenses and perspectives. For me, the most valuable research is not the one that is sufficiently proven to the point of reaching unequivocal conclusions, but the one in which people acquire these new glasses.
I believe that strategy consists of collective action in order to produce economic wealth and individual meaning. It is closely related to people in and from organizations. The boundaries between strategy and organization are increasingly blurred. If in the last 15 years the strategy was closer to the economy and marketing, in the next 15, it will be closer to the behavior of organizations and cognitive theory.
When you delve into your roots, all successful strategies share the same underlying principles or foundations. We can say that Microsoft's strategic foundations are the same as those of El Corte Inglés, or Zara, or Bankinter. If we understand them, we can develop our own unique strategies.
The ultimate goal of the strategy is to opt for a truly unique, differentiated strategic position.
You have to decide in at least three fundamental areas:
- The customers we will and will not focus on The products we will and will not offer The activities we will and will not perform
To think strategically is to choose, and a company will be successful if its choice takes it to a different, differentiated strategic position. Most likely, our analyzes will not allow us to arrive at solutions that are 100% different from those of our competitors, but the ambition must be to create maximum differentiation.
The who, what and how define the parameters under which the company will operate. By definition, they also delineate the fields in which you will not fight, the clients that you will not seek, the investments that you will not finance, and the competitors that you will not respond to.
These decision-making processes are painful - because they imply the abandonment of proposals with which we are very emotionally linked - and are often preceded by internal debates, disagreements, politics. But unless chosen, the limited resources of the company can be used so extensively, scattered, that it loses concentration, focus, direction.
The first requirement will be to maximize the options from which you will choose the one that is most differentiated. The most frequent source of strategic failure occurs when companies are unable to clarify and make explicit the options in the three areas mentioned above. One company cannot be everything to everyone. You must decide what you will do and what you will not do.
It is obvious that the company needs to have, create, ideas and then choose. The first thing is to generate as many options as possible and then choose the most differentiating one. It goes without saying that the greater the number of ideas, the better the chosen one. Therefore, the first strategic task should be to maximize the number of possible ideas of which a few will be put into practice. From this variety we will have the luxury of choosing.
The question is, therefore, how to achieve this maximization; And this is where innovation comes into play: the more creative the company is in this phase of idea generation, the greater the probability of designing a new strategy that breaks the rules of the game.
Here are some of the tactics to encourage creativity:
- Encourage everyone in the organization to question the implicit assumptions and beliefs - the sacred cows - about who the real customers are, what we are actually offering them and how we do it. Collectively question the belief assumed by the entire company about the type of business or activity in which the company operates. To facilitate this questioning, create a positive crisis. If we get it right, we will galvanize the organization into active thinking. If we get it wrong, we will create demoralization, confusion, and disappointment throughout the company. What is a positive crisis? For me it is a state of group consciousness of the complexity of the environment and of the company itself,and therefore of the need to be continuously looking for new "attractors" Design organizational processes to collect and use ideas from everyone, employees, customers, distributors, etc. Each company uses different tactics but the idea is identical. That everyone can contribute and facilitate the communication of their points of view to those who are responsible for making decisions.Create variety in the thinking that occurs in the planning processes, which is achieved by forming human teams of ideas, backgrounds, experiences and diverse beliefs and using diverse approaches to express this thinking Institutionalize a culture of innovation. The company must create an organizational environment - culture, structure, incentives, people - that promotes and supports innovative behaviors.employees, customers, distributors, etc. Each company uses different tactics but the idea is identical. That everyone can contribute and facilitate the communication of their points of view to those who are responsible for making decisions.Create variety in the thinking that occurs in the planning processes, which is achieved by forming human teams of ideas, backgrounds, experiences and diverse beliefs and using diverse approaches to express this thinking Institutionalize a culture of innovation. The company must create an organizational environment - culture, structure, incentives, people - that promotes and supports innovative behaviors.employees, customers, distributors, etc. Each company uses different tactics but the idea is identical. That everyone can contribute and facilitate the communication of their points of view to those who are responsible for making decisions.Create variety in the thinking that occurs in the planning processes, which is achieved by forming human teams of ideas, backgrounds, experiences and diverse beliefs and using diverse approaches to express this thinking Institutionalize a culture of innovation. The company must create an organizational environment - culture, structure, incentives, people - that promotes and supports innovative behaviors.That everyone can contribute and facilitate the communication of their points of view to those who are responsible for making decisions.Create variety in the thinking that occurs in the planning processes, which is achieved by forming human teams of ideas, backgrounds, experiences and diverse beliefs and using diverse approaches to express this thinking Institutionalize a culture of innovation. The company must create an organizational environment - culture, structure, incentives, people - that promotes and supports innovative behaviors.That everyone can contribute and facilitate the communication of their points of view to those who are responsible for making decisions.Create variety in the thinking that occurs in the planning processes, which is achieved by forming human teams of ideas, backgrounds, experiences and diverse beliefs and using diverse approaches to express this thinking Institutionalize a culture of innovation. The company must create an organizational environment - culture, structure, incentives, people - that promotes and supports innovative behaviors.diverse experiences and beliefs and using diverse approaches to express this thinking Institutionalize a culture of innovation. The company must create an organizational environment - culture, structure, incentives, people - that promotes and supports innovative behaviors.diverse experiences and beliefs and using diverse approaches to express this thinking Institutionalize a culture of innovation. The company must create an organizational environment - culture, structure, incentives, people - that promotes and supports innovative behaviors.
This is not an exhaustive list of tactics that can be used to enhance creativity in strategic design. I am convinced that there are others and other processes to develop them. However, the principle is the same. In this phase of strategic thinking, the objective is to generate as many ideas as possible to have the luxury of choosing.
And in case I have not explained myself clearly, let me repeat my point of view: New ideas in strategy are not just any kind of ideas; only those that seek to answer the questions: who are our target customers ?; What can we offer them? How can we do it? In other words, strategic ideas are those that attempt to answer the who, what and how questions.
Strategy means choosing; and also working with opposites, with paradoxes.
Having developed a huge list of ideas about what the company could do, you have to decide what you are actually going to do. This means that all ideas have to be evaluated and decide on what to try and what not to try.
Choosing is very difficult.
At the time of making the decision, no one can be sure that a specific idea will be successful, nor is it known whether the options chosen are really the most appropriate.
At this point, the level of uncertainty can be reduced by evaluating each idea or by experimenting with them to see if it works or not. It is very important to highlight that we can reduce the levels of uncertainty but not eliminate them. No matter how much experimentation we carry out and the reflection we dedicate to the issue, there will come a time when the company has to choose. And it may happen that the decision is the wrong one; however, uncertainty cannot excuse indecision.
Not only does the company have to decide what to do, but what not to do. The worst strategic mistake is to choose something and, just in case, do other things as well. Imagine a company in which its chief executive proclaims: "Our strategy is as transparent as glass: we are going to do ABC"; at the same time, employees see that XYZ is being made together with ABC.
For them, this can only be explained in two ways: Either we don't have a strategy, or the managers are totally confused. In either of the two hypotheses, the organization becomes demoralized and loses its confidence in the management. Companies that say one thing and do another are those that have failed to make a clear choice between what they are going to do and what they are not going to do.
The strategy must combine all our options to create a mosaic that is self-reinforcing.
The strategy is much more than choosing, than deciding. It has to be able to combine all the options to form a system that creates the essential match between what the environment needs and what the company does. Deciding the options separately is much less important than their conjunction in a well balanced system.
In this sense, it is vital that we conceptualize the company as a combination of activities. From this perspective, the organization is a complex system of interrelated and interdependent activities, in such a way that each of them affects all the others directly or indirectly. This means that unless we take a holistic, holistic approach to designing business activities, what we do will work against us.
Even if each individual activity is perfectly designed, the whole can suffer if we do not take into account the interdependencies. Partial, local, task- or department-centered optima may be undermining the global optimum. The point is that human beings can never fully understand the complexity of systems. We tend to focus on one or two aspects of the organizational system and try to optimize these sub-systems independently of the others. By not taking interdependence into account, things get worse.
Also, we do not realize that we are the cause of the situation because our actions take time to show us their effects. When we are affected by the long-term effects of short-term actions, we blame others, and especially outside forces, for our problems: “we did not make forecasts”; "The demand is unpredictable"; "The economy does not grow", etc.
The strategy has to achieve adaptation without losing flexibility.
When we are able to achieve a good adaptation between what the market needs and what our company does, this can work against us if the environment changes and the organization does not respond adequately. The story of the frog is beginning to be known. When it is placed in a pot with boiling water, it jumps to save its life; But when it is placed in the same pot with water at normal temperature and we heat it to a boil, the frog does not notice it and dies. The same is true in the environments in which we operate where changes are almost never abrupt and sudden.
As the company adapts to its environment, it has to maintain the necessary flexibility to respond to changes in the environment; even to create them. What does flexibility mean? From my point of view, three things:
- The company must be able to identify changes in its environment well in advance It must have adequate cultural training to accept change and respond to it It must have or create the knowledge and skills to be able to compete in the environment configure after change.
Therefore, this flexibility has a cultural component, an attitude, being predisposed to change; and another of aptitude, being able to change.
The strategy must be supported by a suitable organizational environment
Any strategy, no matter how brilliant, has to be executed properly and this execution does not happen in a vacuum. It occurs in a company whose environment we all create, but the managers with greater intensity. And this environment is what produces the behaviors that we observe in companies. Therefore, if we want a behavior that facilitates the execution of the strategy, the first thing we have to do is contribute to create that environment, that environment in the company. The main components are the culture of the company; your incentives; its structure; and its people. The company has to ask itself what kind of culture, incentives, structure and people do we need for the strategy to be successful?
In other words, to create a truly different superior strategy, the company has to think beyond its customers, products and activities. You also have to design the environment, the environment, that facilitates strategic execution.
Nor is it enough to decide on those four aspects.
We must see how we assemble them in such a way that each of them supports and complements the others while, as a whole, supports and complements the decided strategy. We have already mentioned that it is essential to conceive the company as a system and how it was necessary to integrate the strategic what, who and how. Now we return to the same concept; Within the same system are inscribed the four aspects of culture, incentives, structure and people that must be mutually reinforcing.
No strategy can be different forever
We have presented our point of view that business success comes from choosing a unique, differentiating strategy. The bad news is that, if we succeed, it is unthinkable that we can sustain it indefinitely. On the one hand we have to have aggressive competitors who will imitate us; on the other, and more importantly, new strategic positions continually emerge. A new strategic position is just another viable combination of who, what and how. What type of customers can be a new segment. What can be a new value proposition and how a different way of manufacturing, of distributing. These new positions will gradually erode ours as we see it in all sectors. Formidable companies,whose strategies seemed impregnable have been humiliated by others almost totally unknown who attack creating and exploiting new strategic positions.
As industries and sectors change, new strategic positions emerge trying to achieve dominance, supremacy. Changes in sectors, in customer needs or preferences, actions of competitors and the evolution of competencies, skills of the company itself, give rise to new opportunities and a potential to change the game or the game rules. Unless the company is continually questioning its accepted norms and behaviors, it will never discover others popping up. You will not take advantage of these new combinations and other more agile competitors will take advantage.
Therefore, a company can never settle for what it has. As he struggles from his current position, he has to continually seek new positions to colonize and take advantage of. Although this seems simple in practice, it rarely happens. Most competitors in any sector take it for granted that the rules of the game are what they are and all they are trying to do is improve their position, generally competing on costs or small product or service differentiations.
But you rarely try to be radically different. The evidence is as clear as the companies that break the deck are small or new entrants in the markets. It is rare to meet an innovator who is at the same time a dominant company in his sector, which gives us a hint of how difficult it is to risk the safe to play for something uncertain.
There are many reasons why established companies can hardly be strategic innovators. Compared with those that operate in niche markets or are new entrants to the sector, the leaders are weighed down by cultural and structural inertia, internal politics, complacency, fear of destroying existing skills, aptitudes, of cannibalizing their products, satisfaction with the "status quo"; in general, a lack of incentives to abandon a certain present in search of an uncertain future.
Also, since there are far fewer leading companies in their industries than potential new entrants, the likelihood of an innovator emerging from among the leaders is very small.
Despite all these obstacles, established, leading companies cannot afford not to innovate strategically. As noted above, new companies are constantly emerging that are either capable of playing better than their competitors, or of playing a new one. Strategic innovation can help third-tier companies achieve first-tier leadership in less time than it would take if they played soccer league. The same can happen to those who play in the first division. Although established companies do not want to innovate strategically for fear of destroying their current profitable positions, others will.
It would be better if the Consolidates attacked themselves.
The culture that the best-known, leading companies must develop is that strategies are not built in concrete. Companies have to seek flexibility to adapt if market information is not favorable. Even more important is that as you trade and compete in the position you have chosen, you are wondering whether you can choose other positions.
The continuous questioning of the strategic position adopted has two vital objectives. First, it enables the company to identify in advance the potential loss of attractiveness of its position and decide how to act. Second, and much more important, it gives you the opportunity to explore emerging terrain and trust that you will be the first to discover new territories, new strategic positions for your benefit.
Of course this cannot be guaranteed. When we question the answers that we have given before we are not sure we will discover new gold deposits. The truth is that if we do not ask ourselves these questions, we are sure that we will never discover anything.
