The Basic Tension in Strategy
Business strategy, as we know it today, has a relatively short history. The word strategy was first applied in print to mainstream business in 1962, with the publication of Alfred Chandler’s book Strategy and Structure: Chapters in the History of the Industrial Enterprise (MIT Press). Since then, at least a dozen major trends and ideas have appeared under the rubric of business strategy, often in great conflict with one another, often drawing companies in very different directions. Despite their differences, all four schools of strategy represent attempts to resolve the same basic underlying problem: the tension between two conflicting business realities.
The first reality is that advantage is transient. Even the most formidable market position can be vulnerable to technological disruptions, upstart competition, shifting capital flows, new regulatory regimes, political changes, and other facets of a chaotic and unpredictable business environment. As William P. Barnett showed in The Red Queen among Organizations: How Competitiveness Evolves (Princeton University Press, 2008), this turbulence can never level off into stability; as companies copy and outdo one another’s proficiencies, the game of business continually becomes more challenging. Rapid economic growth in emerging markets has made advantage even more transient, bringing billions of people into the global economy, along with hundreds of energetic new business competitors.
One might assume that the answer is to become completely resilient, morphing to match the changing demands of the market. But companies can’t, because of the second reality: Corporate identity is slow to change. The innate qualities of an organization that distinguish it from all others — its operational processes, culture, relationships, and distinctive capabilities — are built up gradually, decision by decision, and continually reinforced through organizational practices and conversations. Very few companies have thoroughly reinvented themselves, and those that have managed it have typically had to force many people out, including top executives, and to replace them with new recruits chosen for a different set of attitudes and skills. Even when leaders recognize the need for change or know that the company’s survival is at stake, this identity is difficult to shift; if no deliberate effort is made to refresh it, it can stagnate to the point where it erodes advantage from within. As writers such as Jim Collins, Clayton Christensen, and Donald Sull have noted, it’s all too easy for established companies to fall prey to complacency and hubris (Collins), entrenched customer relationships and disruptive technologies (Christensen), or inertia (Sull).
Yet although the “stickiness” of a company’s identity is typically regarded as a weakness, it’s also a great source of strength. No company can survive long, let alone distinguish itself, without a rich body of capabilities and a resonant corporate culture. Indeed, the fundamental enabler of strategy — the source of competitive advantage — is a distinctive, coherent corporate identity. This is the quality that attracts customers, investors, employees, and suppliers. It is grounded in internal capabilities (that is, the things your company can do with distinction) and in market realities (that is, the games in which your company chooses to play).
The yin and yang of strategic fad and fashion — the movement of business leadership from one trend to another over the past 50 years — has often led companies to make incoherent and ineffective moves. The answer is not to keep adopting new theories in hopes of finding the right answer, but to develop your own capabilities-driven strategy: your own theory of coherence for your business. How do you capture value, now and in the future, for your chosen customers? What are your most important capabilities, and how do they fit together? How do you align them with your portfolio of products and services? The more clearly and strongly you make these choices, the better your chances of creating a corporate identity that gives you the right to win in the long run. Not surprisingly, each of the four basic schools of thought in Exhibit 1 (position, execution, adaptation, and concentration) has something significant to offer business strategists, so long as they are adopted in an appropriately balanced way.