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 / Summer 2012 / Issue 67(originally published by Booz & Company)


Three Games of Strategic Thinking

Such challenges to the supposedly rational behavior defined by probability theory contributed to the new field of behavioral economics. Observations of real decision making allowed an integration of psychology and economics that yielded new predictive insights, as well as a Nobel Prize for Daniel Kahneman for the work he did with Amos Tversky in the 1970s.

As is often the case, thinking in the more pragmatic field of business strategy drew inspiration from the hard sciences. By the mid-1980s, scholars had begun to articulate a strategy paradigm involving organizational learning that parallels the second urn. In a business world full of Knightian uncertainty — that is, unknown probability distributions — the tools of Planning and Positioning offer little comfort. Rather than expending effort predicting the future and positioning themselves within it, companies should employ an “emergent strategy.” This term was coined by Henry Mintzberg in a 1985 paper titled “Of Strategies, Deliberate and Emergent.” Although Mintzberg did not dismiss the need for “deliberate strategy” as articulated in the Planning and Positioning paradigm, he asserted that managers needed a different approach when faced with the second urn option. “Emergent strategy itself implies learning what works — taking one action at a time in search for that viable pattern or consistency.” In other words, take a guess on red or black, but then adjust your guesses as you see the results of the individual draws.

Corning Inc., an often-referred-to example of a learning organization, predates the scholarly articulation of the paradigm. The origins of the company trace back to Amory Houghton’s investment in a small glass company in the town of Corning in upstate New York in 1851. The Houghton family, which continued to play an active role in managing the company into this millennium, held a near-religious belief in research and development. From the beginning, the company invested in advancing the science of glassmaking to avoid competing with low-cost producers. Starting with its first patent for a superior signal glass for the maritime and railroad industries, Corning produced a string of innovations from its deep knowledge of glass and ceramics. In 1880, for example, Thomas Edison turned to Corning to make the glass bulb for his new invention, and the company created a process for high-speed lightbulb manufacturing that delivered a sustained advantage for the company for decades.

Other innovations included Pyrex, which was introduced in 1915; processes for mass production of TV tubes in the 1940s; ceramic substrates for catalytic converters in the 1970s; fiber optics, which scaled in the 1980s; and most recently, Gorilla Glass, which now dominates in the smartphone and tablet market. However, the technical origins of these innovations typically dated back decades before their successful commercialization. For example, the fusion process that Corning uses for Gorilla Glass dates to the company’s 1960s efforts to make glass both thinner and stronger for motor vehicles. When automakers rejected the glass for cost reasons, despite its superior performance characteristics, Corning shelved the technology until 2006, when Apple CEO Steve Jobs contacted Corning CEO Wendell Weeks in search of a scratch-resistant, lightweight screen for the iPhone. Gorilla Glass now appears poised to be Corning’s next major growth engine.

Long before C.K. Prahalad and Gary Hamel articulated the concept, Corning management intuitively understood the need to continuously invest in “core competencies.” Corning’s technological and process capabilities have responded to a world of Knightian uncertainty for more than 160 years. The company has played the second urn game exceedingly well.

An Organizational Learning model probably resonates with managers having a liberal arts education, in which students are trained for nothing, but educated for anything. Planning and Positioning adherents predict how the industry will unfold and place bets accordingly, and the learning organization dynamically responds to the unfolding environment. But both of these strategy paradigms assume that the external environment defines the strategy. The third paradigm applies for individuals seeking to shape the future environment rather than predict or respond to it.

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