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 / Winter 2009 / Issue 57(originally published by Booz & Company)


Best Business Books 2009: Strategy

Toward this end, Salter seeks to distinguish between optimism, which can help performance and have “survival-enhancing effects in business,” and hubris, which has “survival-destroying effects.” But in our daily lives, optimism and hubris are terms we bestow after knowing the outcomes. If a firm performs well, we infer that healthy optimism was present; in the event of failure, we infer hubris. For the strategist, such ex post facto attributions are insufficient. Salter tries to offer a few guidelines: “Certainly, investments in new gas pipelines, gas trading, and even electricity trading — areas in which Enron had operating experience — should be considered intelligent gambles, which are well accepted as normal activities in business. However, investments pursued without relevant operating experience; without deep, specific knowledge on the part of project overseers at corporate headquarters; and without effective risk controls — such as the aforementioned electric power projects and the excursions into water and broadband businesses — crossed the line into the zone of reckless gambles.” Fair enough, but perhaps it still prompts the deeper question, How much relevant experience and how much specific knowledge is needed before we undertake a new strategic initiative? Strategy always involves making commitments in conditions of uncertainty, and risks can never be fully obviated.

One legacy of the Enron disaster is a spate of new rules concerning corporate oversight, governance, and the independence of auditors. Such rules are important, but Salter argues that “the irony of that legacy is that the new rules cannot — by themselves — prevent Enron-style debacles, because they do not address many of the causes of the company’s breakdown.” For a cure, he points us not in the direction of greater regulation, but to principles of responsible leadership found in Philip Selznick’s 1957 classic, Leadership in Administration: A Sociological Interpretation (Row, Peterson), and its emphasis on principle and a sense of ultimate consequence. Perhaps, despite our fondest hopes to engineer superior results with strategic formulas, we are best off reading a 50-year-old leadership book.

Which brings us back to the current crisis. In the financial meltdown, it’s tempting to search for books that promise to create profits amid turbulence or turn adversity into advantage. The three books reviewed here remind us of timeless themes in strategy, yet each offers something new. The Invisible Edge addresses IP as a core issue of differentiation, but emphasizes the need to protect what we create, whether through control, collaboration, or simplification. Dynamic Capabilities reminds us of the need to look within the firm and examine the ways that organizations sense changes, seize opportunities, and reconfigure capabilities, all in response to the actions of managers. And the story of Enron in Innovation Corrupted makes clear how hard it is to know how far we can extend core capabilities and warns us that the impulse for high performance can be perverted without proper oversight. Strategic decisions can never be reduced to exact formulas. They require a sense of balance and perspective to guide choices under uncertainty. 

Author Profile:

  • Phil Rosenzweig is a professor at IMD in Lausanne, Switzerland, where he works with leading companies on questions of strategy and organization. He is the author of The Halo Effect...and the Eight Other Business Delusions That Deceive Managers (Free Press, 2007).
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