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Published: November 23, 2010
 / Winter 2010 / Issue 61

 
 

The Right to Win

The experience curve and growth-share matrix rapidly became popular because they worked powerfully well — at first. But in practice, these tools had a serious flaw: As retroactive analyses of a company’s past success, they made it irresistible to continue that same behavior into the future, even when circumstances changed (for example, when competitors began to apply the same approach). This led many companies into counterproductive strategies. Some, including Texas Instruments, got caught up in ruthless price wars that contributed to the commoditization of their own products.

More generally, many business leaders became disenchanted with the idea of formal strategic planning. It was expensive, and it didn’t necessarily make companies profitable. For example, Ford and General Motors experienced losses of more than US$500 million in 1979 and 1980 — their first such losses in decades. In the aftermath of these and other sharp reversals, mainstream business leaders began to question the wisdom of the position school, and its claim on the right to win.

Execution Strikes Back

Those most annoyed by the position school tended to be in production and operations. No wonder, then, that the first great contrary reaction came from operations; specifically, from the Harvard Business School’s (HBS) operations management department, which had been gradually losing status to finance. Two members of the faculty found themselves in Vevey, Switzerland, during the summer of 1979: William Abernathy, the HBS expert on auto manufacturing, and Robert Hayes, known for his studies of assembly lines. Researching the differences between European and U.S. multinationals, Hayes visited a small machine tool manufacturer in southern Germany. Sophisticated Americans barely understood computer-aided manufacturing software, but this firm of 40 people was using it on a daily basis, and producing custom-made tools. Other plants in Germany, Switzerland, France, and even eastern Europe were using machine tools in ways that the Americans couldn’t match.

At a seminar that summer, a European businessman asked Hayes why American productivity had declined so much during the past 10 years. Hayes hauled out the standard answers: organized labor, government regulations, the oil crisis, and the attitudes of the younger generation (which, at the time, meant the baby boomers). The attendees looked at him with polite amusement. “We have all those factors here,” one said, “and our productivity is increasing.”

Confused and shaken, Hayes began taking regular hikes and having long conversations with Abernathy, who had just arrived in Vevey and saw similar stagnation in the U.S. auto industry. Only one explanation made sense to them: The reliance on market share and financial growth as strategic objectives was crippling U.S. industry. For example, many companies had cut back any initiative that didn’t seem to guarantee rapid returns, and the entire U.S. economy was suffering as a result.

Abernathy and Hayes wrote up this conclusion in an article for the Harvard Business Review (HBR) called “Managing Our Way to Economic Decline,” published in July/August 1980. It is still one of the magazine’s most requested reprints, and one of the most controversial articles in its history. They had introduced another school of strategic thought, based on the idea that the right to win came from execution and operational excellence: the development and deployment of better practices, processes, technologies, and products.

The execution message was bolstered by companies such as General Electric and Motorola, which provided influential examples of operations-oriented strategies with their reliance on executive training and such practices as Six Sigma.

Operational excellence was also a basic tenet of the quality movement — the continuous improvement practices that were developed at the Toyota Motor Corporation and a few other Japanese companies in the 1950s and ’60s and are now generally known as lean management. Of the many people associated with the quality movement, including Toyota’s influential chief scientist Taiichi Ohno, the most significant for corporate strategy was W. Edwards Deming. Deming was an American statistician born in 1900. He began consulting regularly in Japan just after World War II, helping Japanese companies develop their production systems. Ignored in the West at first, he became prominent in the United States after 1980, and actively taught and consulted with many of the world’s leading companies until his death in 1993. Deming saw his methods as critical for escaping economic malaise (his most prominent book was titled Out of the Crisis [MIT Press, 1986]). In his view, the right to win was held by companies that honed and refined their day-to-day processes and practices, eliminating waste, training people throughout the company to use statistical methods, and cultivating the intrinsic “joy in work” that people feel when they are truly engaged in their jobs.

 
 
 
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Resources

Introduction

  1. Paul Leinwand and Cesare Mainardi, The Essential Advantage: How to Win with a Capabilities-Driven Strategy (Harvard Business Press, 2010).
  2. Paul Leinwand and Cesare Mainardi, “The Coherence Premium,” Harvard Business Review, June 2010.

A Landscape of Strategy Concepts

  1. Walter Kiechel, The Lords of Strategy: The Secret Intellectual History of the New Corporate World (Harvard Business Press, 2010).
  2. Walter Kiechel, “Seven Chapters of Strategic Wisdom,” s+b, Spring 2010.
  3. Henry Mintzberg, Bruce Ahlstrand, and Joseph Lampel, Strategy Safari: The Complete Guide through the Wilds of Strategic Management (2nd ed., FT Prentice Hall, 2009).

The Basic Tension in Strategy

  1. Alfred D. Chandler Jr., Strategy and Structure: Chapters in the History of the Industrial Enterprise (MIT Press, 1962).
  2. William P. Barnett, The Red Queen among Organizations: How Competitiveness Evolves (Princeton University Press, 2008).
  3. Clayton M. Christensen, The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail (HarperBusiness, 2000).
  4. Donald Sull, The Upside of Turbulence: Seizing Opportunity in an Uncertain World (HarperCollins, 2009).
  5. Jim Collins, How the Mighty Fall: And Why Some Companies Never Give In (HarperCollins, 2009).

The Value of Position

  1. H. Thomas Johnson and Robert S. Kaplan, Relevance Lost: The Rise and Fall of Management Accounting (Harvard Business School Press, 1987).
  2. Art Kleiner, “What Are the Measures That Matter?” s+b, First Quarter 2002 (re: Johnson and Kaplan).
  3. Walter Kiechel, “Seven Chapters of Strategic Wisdom” and The Lords of Strategy (re: Andrews, Ansoff, and Henderson).
  4. Kenneth Andrews, The Concept of Corporate Strategy, (3rd ed., Richard D. Irwin, 1987).
  5. Art Kleiner, The Age of Heretics: A History of the Radical Thinkers Who Reinvented Corporate Management (2nd ed., Jossey-Bass, 2008) (re: Henderson and the aftermath).
  6. Bruce Henderson, “The Development of Business Strategy,” in Carl W. Stern and Michael S. Deimler, eds., The Boston Consulting Group on Strategy: Classic Concepts and New Perspectives (Wiley, 2006).

Execution Strikes Back

  1. Art Kleiner, The Age of Heretics (re: Hayes, Abernathy, and Deming).
  2. Robert H. Hayes and William J. Abernathy, “Managing Our Way to Economic Decline,” Harvard Business Review, July/August 1980.
  3. Gary Hamel and C.K. Prahalad, Competing for the Future (Harvard Business School Press, 1994).
  4. Art Kleiner, “The Life’s Work of a Thought Leader” (interview with C.K. Prahalad), s+b, August 9, 2010.
  5. Michael Hammer and James Champy, Reengineering the Corporation: A Manifesto for Business Revolution (HarperBusiness, 2003).
  6. Larry Bossidy and Ram Charan, Execution: The Discipline of Getting Things Done (with Charles Burck; 2002; rev. ed., Crown Business, 2009).
  7. Walter Kiechel, The Lords of Strategy (re: Stalk).

Michael Porter’s Advantage

  1. Walter Kiechel, The Lords of Strategy and “Seven Chapters of Strategic Wisdom” (re: Porter).
  2. Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (1980; rev. ed., Free Press, 1998).
  3. Michael E. Porter, “What Is Strategy?” Harvard Business Review, November/December 1996.
  4. Michael E. Porter, “The Five Competitive Forces That Shape Strategy,” Harvard Business Review, March/April 1979.
  5. W. Chan Kim and Renée Mauborgne, Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant (Harvard Business School Press, 2005).
  6. Henry Mintzberg, The Rise and Fall of Strategic Planning: Reconceiving Roles for Planning, Plans, Planners (Free Press, 1994).
  7. Art Kleiner, The Age of Heretics, and Walter Kiechel, “Seven Chapters of Strategic Wisdom” (re: Peters).
  8. Thomas J. Peters and Robert H. Waterman Jr., In Search of Excellence: Lessons from America’s Best-Run Companies (Harper & Row, 1982).
  9. Chris Zook with James Allen, Profit from the Core: Growth Strategy in an Era of Turbulence (Harvard Business School Press, 2001); Profit from the Core: A Return to Growth in Turbulent Times (rev. ed., Harvard Business Press, 2010).
  10. Paul Leinwand and Cesare Mainardi, The Essential Advantage (re: Zook).