There is another reason to study business theory and read stories of successful strategy. Strategic theories can ultimately shape the very context in which strategies are developed and executed. The interplay of theory and actual behavior is particularly important when the paradigm of business shifts and our understanding of new potential strategies lets us create new markets or reshape competitive dynamics. In business, unlike in nature, the fittest often survive by helping create the environment that favors them.
We may have passed through just such a shift sometime in the last decade. The rules of business seem to have mutated. Familiar market boundaries have blurred, or even disappeared. Companies have lost mass and gained speed. Every business faces uncertainty. Chris Zook and his Bain & Company partners put it this way: “Almost all of our clients and their competitors [are] confronting more fundamental and more frequent threats to their core businesses.” Throughout this period, managers have become less confident, a clear sign of impending change and a need for fresh theories.
Four of the strategy books reviewed here are well worth reading for their informative and insightful treatment of strategy, in theory and in practice: The Strategy Paradox: Why Committing to Success Leads to Failure (and What to Do about It), by Michael E. Raynor, for its view on how strategic uncertainty can best be managed; Dragons at Your Door: How Chinese Cost Innovation Is Disrupting Global Competition, by Ming Zeng and Peter J. Williamson, and Wal-Smart: What It Really Takes to Profit in a Wal-Mart World, by William H. Marquard, for their analyses of how emerging dominant competitors are changing the strategic environment; and Unstoppable: Finding Hidden Assets to Renew the Core and Fuel Profitable Growth, by Chris Zook, for rules and examples for renewing business. The fifth and best, Duggan’s Strategic Intuition, takes on a more challenging task: identifying the processes that lie behind the creative flash of genius and suggesting the means to develop greater intuitive strategy skills.
Creating Strategic Flexibility
Strategists have long argued for strategic purity (i.e., focused, distinctive strategy) and commitment (i.e., clear alignment of all resources and capabilities with that strategy), citing research and examples showing that the highest returns are correlated with focus and commitment. In The Strategy Paradox, the most rigorous and scholarly of this year’s selection, Michael Raynor identifies the fundamental paradox in this thinking. Since one cannot plan for an unknowable future, the same focus and commitment that promise the highest returns necessarily imply the greatest probability of failure.
In Raynor’s analysis, this is caused by the strategic uncertainty inherent in the marketplace. The choices underlying a focused, committed strategy must often address a future that involves unpredictable changes in consumer response, market dynamics, and development paths. “Middle-of-the-road” strategies offer more resilience, “but at the cost of being able to generate significant returns,” he writes. It is impossible to build sufficient adaptability at the business level, even if competitors’ responses might be parried. With classic examples, including Sony Betamax, Raynor illustrates that the firms that guess right and commit more vigorously to the strategy that fortune ultimately favors will defeat their competitors, but they risk catastrophe.
Raynor believes the resolution of this paradox at the business level lies in strategic flexibility at the corporate level. Corporations can reduce risk by “managing strategic uncertainty through the creation of strategic options,” investing in a portfolio of positions, even as individual businesses take the risks inherent in high-return strategies. As decisions move up the corporate hierarchy, executives’ time horizons should lengthen and their priorities should shift from managing commitments to building options on an uncertain future. “CEOs should not see their role in terms of making strategic choices — that is, commitments,” Raynor writes. “Rather, they should focus on building ‘strategic options,’ that is, creating the ability to pursue alternative strategies that could be useful, depending on how key uncertainties are resolved.”