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Published: February 23, 2010
 / Spring 2010 / Issue 58


Seven Chapters of Strategic Wisdom

Their second chapter, “The Rational Model,” pilloried the prevailing strategic approach for its simple-minded assumptions — that bigger was better, that low cost was a surefire winner, and that a manager’s job was to make decisions. More subtly, it enumerated the often pernicious effects of management’s retreating to what the authors described as “analytic ivory towers,” citadels of executive decision making isolated from the cut-and-thrust of everyday operations. A company that followed the then dominant model of strategy would end up focused almost entirely on costs, to the neglect of quality or value. Experimentation and its handmaiden, mistakes, would be discouraged.

Instead, In Search of Excellence pointed toward a different, more organic view of strategy, one that came to be known as “emergent” — in contrast to the “positionist” school. A positionist such as Porter (and of course we’re oversimplifying here, as any brief intellectual history must) believes that you should conduct a rational analysis, decide on the competitive position you wish to occupy, develop the strategy to get there, then execute.

Fat chance, counter those of the emergent persuasion. Unless you’re a startup, you begin with the hand that you’ve been dealt. You go from there, with all the existing strengths and weaknesses, setting off in a general direction. You run into reality — including markets, products, and competitors that don’t behave the way you expect them to, learn from your mistakes, make corrections, and “execute like hell” (as Jack Welch would later advise). In the process, your strategy emerges.

The 1980s were not kind to positionists. As deregulation and increasingly global competition spread the liberating effects of free markets, companies had greater difficulty holding the strategic ground they thought they had staked out for themselves. To maintain your existing competitive advantage, or, even better, to create a new one, you would have to build into your strategy the capacity to innovate: to make big bets on new products, services, even management processes that gave you an edge over competitors. In Richard N. Foster’s 1986 book, Innovation: The Attacker’s Advantage, this imperative was nicely tied in with one of the enduring intellectual legacies of the positionist school: the notion that behind many successful strategies is an exercise in pattern recognition.

Not experience curves this time, but rather S-curves. In the fourth chapter of his book, “The S-Curve: A New Forecasting Tool,” Foster recounts how the progress of an emerging technology typically begins with a period of slow, grinding performance improvement — the flat bottom of the “S” — then takes off, shooting upward before finally leveling off into maturity. His examples include the rate at which artificial hearts improved and watches became thinner.

What gave Foster’s insight its strategic punch was his observation that such curves typically come in successive waves, with the performance curves of newer technologies starting higher up than the curves of previous technologies. Each new technology grows slowly at first, but eventually improves so rapidly that it puts its older rival technologies out of business. And most companies can’t jump from one curve to the next. Every strategist should have in her or his desk drawer a copy of Foster’s chart (admittedly, you have to go to Chapter 5 to find it) that shows that the list of the top three companies in vacuum tubes (RCA, Sylvania, GE) bears no relation to the list of industry leaders in the next wave, transistors (Hughes, Transitron, Philco), which in turn looks nothing like the list of the companies that came to dominate semiconductors (TI, Motorola, Fairchild).

Paranoia Strikes

You’d better be an attacker, even if it means innovating to supplant your current technology. Just how difficult it is to pull this off, or to make any major change in strategic direction, is wonderfully captured in “Why Not Do It Ourselves?” the fifth chapter in Andrew S. Grove’s Only the Paranoid Survive: How to Exploit the Crisis Points That Challenge Every Company, published in 1996. Grove tells how in 1985 he and Gordon Moore realized that Intel, the company they led, needed to get out of the business on which it was founded, making semiconductor memory chips, to concentrate instead on microprocessors. The reaction they encountered as they navigated their company through this “strategic inflection point” won’t surprise anyone who has tried to effect change in an organization. “How can you even think of doing this?” came the chorus from the heads of the company’s memory-chip operations. “Look at all the nifty stuff we’ve got in the pipeline” (even if we are losing our collective shirt to low-cost Japanese competitors).

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Strategy Resources:
Works mentioned in this review.

  1. Alfred D. Chandler Jr., Strategy and Structure: Chapters in the History of the American Industrial Enterprise (MIT Press, 1962), 478 pages: Introduction
  2. Kenneth R. Andrews, The Concept of Corporate Strategy (Dow Jones-Irwin, 1971), 264 pages: Chapter 2, “The Concept of Corporate Strategy”
  3. Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (Free Press, 1980), 416 pages: Chapter 2, “Generic Competitive Strategies”
  4. Thomas J. Peters and Robert H. Waterman Jr., In Search of Excellence: Lessons from America’s Best-Run Companies (Harper & Row, 1982), 386 pages: Chapter 2, “The Rational Model”
  5. Richard N. Foster, Innovation: The Attacker’s Advantage (Summit Books, 1986), 316 pages: Chapter 4, “The S-Curve: A New Forecasting Tool”
  6. Andrew S. Grove, Only the Paranoid Survive: How to Exploit the Crisis Points That Challenge Every Company (Currency Doubleday, 1996), 222 pages: Chapter 5, “‘Why Not Do It Ourselves?’”
  7. Henry Mintzberg, The Rise and Fall of Strategic Planning (Free Press, 1994), 478 pages: Chapter 5, “Fundamental Fallacies of Strategic Planning”