In Search of Strategy

Part of the “In Search of Series …..”

The Origins of Strategy?

The Military??

Wars, conflicts, and battles have and continue to play a dominant role in human life. Wars have erupted between families, tribes, cities, regions, states, and nations. Each has a history, and all have been studied in detail. Wars and military campaigns have been mentioned in ancient writings, including the Old Testament, as early as 2500 BCE.

Most societies start small. Some grow into large organized collections spread across vast territories. No matter the size, armies were used to defend or attack the enemy. The size of the society, territory, and funding dictated the size of armies.

Wars are expensive and complex to manage. The skill, craft, art, and methods used to plan and execute a war to achieve some political and military goal have been the subject of study for over two thousand years.

Wars are complex to prosecute as they involve political, economic, military, and diplomatic activities necessary to achieve the strategic objectives of a conflict.?

Prosecuting a war differs from "executing a battle," which involves carrying out specific combat operations in a well-defined and limited area of conflict.?

As you scale from a skirmish through engagement, battle, operation, campaign, and ultimately to full-scale conflict, the ability to deeply understand the network of interlocking issues, structure and shape a plan, determine and consider the risks, factor in the constraints and manage the competing interests of all parties exceeds the capability and effort of a single person.

The only way to overcome this deficit is to apply a systematic and methodical process to architect a strategy and then transform that into a strategic plan.?This requires a collective effort.

As the scale of goals increase, more people, teams, and organizational components need to be involved. Coordinating their efforts to design and execute a cohesive plan becomes the work.

Yes, you can be ad-hoc in your approach. Yes, you can be reactive. Yes, you can base your plan on limited information and gut instincts, and yes, you may be successful using this approach. The alternative is to use a strategic process. While this does not guarantee a successful outcome, it will improve the odds of success. And at the end of the day, that's all you want. ?

Political Administrations

The large political and religious administrations of the past were the earliest to understand and use strategy as a means to achieve goals. The Roman administration, the Chinese Imperial service, and the Catholic Church, to name a few. These administrations understood that achieving their goals required strategies more nuanced than the use of brute force. They integrated the arts of diplomacy, trade, culture, and administrative efficiency to help expand their influence and maintain stability over their vast and diverse populations. Their strategies were adaptive and long-term and laid the foundation for some of the modern concepts of geopolitics.

• Military force was used as part of a broader strategy rather than the sole means of achieving goals.
• Diplomacy and alliances with neighboring states through treaties were often used as a means to neutralize threats and expand influence.?
• The control of trade routes and economic strategies allowed these administrations to secure resources, fund projects, and enforce dependence.
• Religious and cultural strategies were employed to integrate diverse populations and legitimize rule.
• Sophisticated bureaucratic systems were created to maintain control over vast territories.

The Study of Strategy

Because wars were pervasive and required large military organizations to achieve military and political goals, the early writers studied the thinking and operations of the Generals charged with the task of ‘winning.’ In theory, the Generals had full command of the resources, a complete view of the theater of war, were knowledgeable about the enemy, understood the battle terrain, and were skilled in developing ‘strategies’ to win.

Writers then presumed that by studying their ‘military operations and thinking’ they could draw out the lessons and convert the ‘art’ of war into a ‘science’ of war.?

The operations of Generals were called strategemata. These studies aimed to help others better conceive and execute battle plans. Prior strategies they studied were treated as ‘experiments’ that they could ‘observe’ and subject to analysis. If a General could study the strategies of the past, then they could shape their stratagem by comparing their plan to a prior approach. So the thinking went.

The intent was to convert strategy-making into a deliberate, reasoned, evidence-based approach to accomplishing some goal, objective, or mission.

The more strategy was studied, the more it was realized that the strategic approach could be applied in the pursuit of any goals, be it personal, family, organizational, military, or nation-based.

Industry?

Pre-Industrial World

Merchants and traders owned the pre-industrial world. This group of brave entrepreneur adventurers plied their trade by land and sea, scouring the world for goods that could be bought from one corner of the world and sold in another. Nothing held back their ambition to trade. As these ambitions grew, so did their organization and management structures.?

The extensive trade networks they created were held together through a delicate, often fragile web of strategic partnerships. Their operations required specialized labor, increasing complexity to manage finances, some means to protect their lives and goods, and deft human skills to navigate the treacherous world of obtaining and keeping valuable trade concessions.?

As trade became more global and contested and the aggregate volume and value grew, the size of merchant organizations grew in proportion, as did the complexity of their business. Managing the scale of operations and contesting their trade routes and concessions required more than just ad-hoc decision-making and planning. The Dutch, British, French, Portuguese, and Spanish all had to grapple with the complexities of their business and used strategy even though it was not a ‘thing’ back then.?????

1513 - The Prince

In 1513, Machiavelli's "The Prince" was published. This treatise was a study of power and statecraft. Mixed into its many insights were observations of the common and timeless traits found in ‘strategic’ thinkers. Here are a few examples.

• Be pragmatic in decision-making.
• Be adaptable and flexible in your response to rapidly changing circumstances.
• Be bold but not rash in decision-making.
• Be decisive and timely in taking action.
• Be judicious in allocating scarce resources.

• Execute rapidly once decisions are made.
• Calculate and calibrate your risks when capitalizing on emerging opportunities.
• Prepare for challenges and anticipate threats.
• Manage perceptions.

A key lesson is to ‘let fortune play its part but not be the leading actor in success.’

Learning from history is more than just reaching back a thousand years. Every day offers up lessons. However, learning requires us to identify and extract the lessons and then learn how to apply them.?

If only it were that easy …

Strategy Is …?

To develop a strategy, we need to understand what strategy is, which means grasping its meaning firmly with our hands.? But every attempt to grab and wrestle its meaning to the floor produces volumes of effort with zero results. Even though the term is widely used, its true meaning remains elusive, and determining its precise nature remains shrouded in mystery. A mystery only a select cabal of 'high priests” seem able to explain.

Adding to the confusion are the hundreds of books on strategy that have applied the term across a wide range of domains, from military to business and everything in between.?

Any word that encompasses a broad spectrum of human activity generates numerous definitions and a surfeit of opinions about its meaning and what it represents. As evidence, we offer the terms ‘intelligence’,? ‘common sense,’ and ‘wisdom’. ?

For terms that express broad concepts, nothing good comes of our attempts to say ‘X’ is this or ‘Y’ is that. So when we say “strategy is …..,” we do so mindful that language has limits to expressing complex ideas concisely, accurately, and unambiguously.??

1770 - The Term Emerges

Although the terms stratēgós, strat?gēma, have been used throughout history, the term 'strategy' first emerged around 1770 in European discussions of military affairs. By the 19th century, it evolved into the broader concept we recognize and use today.

What It Means

Regardless of which century or who developed the strategy, the process followed a similar path. They all needed to answer three fundamental questions.

• What are the ends?
• What means can we use?
• How do we ‘apply’ the ‘means’ to achieve the ‘ends’?

Strategy - A type of Problem??

One can view the development of a strategy as a solution to a particular class of problems that can be expressed as ‘What means do I need and how do I apply them to achieve some ends’.

Being clear about the ends and determining the means needed to achieve them is step one.??

Developing a strategy involves navigating a web of options and uncertainties. Reasoning one's way through that maze of options is the challenge. Determining which path to take and structuring a cohesive plan to execute is the work. You only know if the plan is good or bad once you execute it.?

Strategic Choices

Much of daily life is spent making choices. Choices have outcomes. Some are inconsequential, while others are catastrophic. Choosing requires selecting one option over others. Choosing also involves evaluating options. Evaluation is a skill that needs to be learned, which takes time and requires effort. Errors will be your constant companion on this journey, so make it your friend. Treat it as someone you can learn from. ?

If strategic solutions emerge from the ‘choices’ we make, then this process can't be haphazard. Systematically evaluating and selecting options becomes the strategic process. What emerges is the ‘strategy’, and a strategic plan to achieve the ends. ?

Change

We pursue our ‘ends’ in an ocean of conditions that can change in the blink of an eye and without notice. We live in the house of chance forever at its mercy. The extent and speed of change determine how much will absorb to survive. Fortunately, the processes of life have provided us with a time-tested template for resilience in the face of change: the mechanism of adaptation.

Intentional Adaptation

In nature, adaptation is not intentional. Natural selection, mutation, gene flow and other mechanisms play the broker in the process. But when it comes to surviving the milieu we inhabit, two things play a major role; luck and intentional adaptation. Any ability to adapt to change improves the likelihood of survival.

Shaping Strategy?

Constraints

Organizations don’t have unlimited means to meet their ends. These limits or constraints come from numerous sources. Competitors, regulation, talent, economic conditions, organizational culture, technology, and funding. All these elements will constrain our ability to maneuver.

Risks

Any approach we take to solving the strategy problem carries risks. Some risks are known in advance, but many are discovered over time.? Risks and constraints shape the strategic plan in advance and cause it to change when it is executed.

Strategic Thinking?

Getting From A to B

Implicit in every plan are the elements and pathways architected to get you from A to B. Architecting that ‘path’ is one of the most important parts of the process. During the process and as the plan unfolds, choices and tradeoffs will be made.? The intentional selection of options requires vision, creativity, analysis, and communication, forming the essence of strategic thinking.?

You can apply strategic thinking to achieving any goal. It can be as grand as “Colonizing Mars”, as practical as “reducing traffic congestion,” as prosaic as “eliminating junk mail,”? or as personal as preparing the Thanksgiving meal. If you apply strategic thinking, you increase the probability of a successful outcome.?

Example

Rockefellers Strategy

In 1860 the world saw the first flow of oil coming down the hills of Pennsylvania. This discovery set off one of the great pursuits of entrepreneurial activity in history. All great business opportunities attract all manner of humankind to the flame of fortune. The hordes descended on the plains of this opportunity like Mongols descending from the Steppes. The market opportunity to provide cheap illumination and heat was huge, and the need was universal and global.??

In the grand scheme of this new business, entrepreneurs jostled to find where they wanted to play. Some were content to discover the wells; others specialized in extracting the oil; others stepped in to transport the oil, while others built the skills and capabilities to refine and market. If you were an alien from Mars, you would have observed the chaos and its consequences on the overall health of this nascent business. The chaos affected everyone, and the gyrations between feast and famine caused heartburn throughout the industry.?

Rockefeller was the man from Mars. He observed the chaos firsthand and studied its cause. Recognizing the damage it inflicted, he developed a ‘strategy’ to eliminate the chaos and subject the industry to a more disciplined approach to supplying the product (kerosene) to the consumer. His strategy was comprehensive, and its implementation took decades.?

So what did he do?

In the early days, venturing into the oil business was highly speculative. Cleansing crude petroleum was a simple and easy process that was very profitable. Because it was easy to get started, it attracted all manner of professions, from the butcher, baker, shoemaker, banker and everyone in between.?

The effect of hundreds of undisciplined and inexperienced entrepreneurs flooding the market with oil products meant that the only direction the price went was down. If the price spiraled downward, it would threaten all players except those with deep pockets to ride out the storm or buy out the weak.?

Rockefeller had a simple insight. If the industry and Standard Oil were to grow, survive, and be profitable, the key problem to solve was how to bring order out of what had become a state of chaos. Finding ways to solve that problem became his life's mission.?

The insight did not come over a cup of coffee or in the shower. It was based on a deep understanding of the business gathered from endless trips into the oil fields, where he observed and asked a thousand questions.?

Rockefeller's nickname was ‘the sponge’, and for good reason.

Once the goals were defined, the analysis moved on to how to achieve the goal. What means would they need, and how to apply them to accomplish the ends?

Over time a number of strategic options were considered and from that five options emerged that set the execution direction.?

The gap between gaining insight, identifying options, and experimenting with approaches took years. The key was the speed at which they learned.

They did not go to an ‘off-site’ for 3 days to develop their strategy and produce a strategic plan. !!

Strategic Options?

So, what options did Rockefeller select to accomplish his astonishing feat?

Strategic Option 1: Expand beyond the local markets and export to foreign countries. This would be a long, expensive, and difficult path to follow, but it would act as a hedge across markets.?

Strategic Option 2:? Improve the refining processes and methods of manufacture so that the oil could be made to a high standard of quality, sold cheaply, but with a profit

Strategic Option 3: Convert the by-products from the raw material into useful products rather than throw them out, thereby extracting additional revenue and profits from the process.

Strategic Option 4: Lower the transportation cost of moving the oil from the wellhead to the consumer and pass on the savings to consumers.

Strategic Option 5: Ensure a steady supply of crude oil at the lowest prices.

Each option had hurdles, risks, and constraints. To achieve them all, Standard Oil would need to be re-shaped by increasing their capital and hiring the best talent with experience.?

Execution

The first step in the plan was to buy the largest and best refining business and centralize the administration to secure greater economy and efficiency. This required the team to build new manufacturing facilities, secure reliable and low-cost transportation, tightly control their finances, and extend markets.?

There were numerous setbacks, and the team constantly adjusted their plans to fit the changed or emerging conditions. Along the way, they gradually learned how to manage a rapidly growing, technically and financially complex business.

Since export markets require products to be shipped, manufacturing near sea-board cities became a key strategic decision. The assumption was that manufacturing for export could be more economical if the plants were near the seaports. There was no proof, so this assumption had to be tested.

Transportation?

The primary method of transporting oil was in barrels. These barrels often cost more than its content. In addition, the supply of cheap timber to manufacture the barrels was diminishing. This was not a good long-term solution.?

The pipeline system was becoming the favored mode for transporting oil, but numerous technical, financial, and regulatory problems needed to be solved.? Operating pipelines across states required permission or charters from the states in which they were located. As required by law, corporations needed to be set up to own the assets in those states.? Much capital would be needed to perfect the pipeline system of transportation.?

The entire oil business would become dependent upon the pipe-line as it enabled wells to deliver oil to every market at home and abroad, driving costs down significantly.?

However, the pipeline system comprised other transportation components such as tank cars on railroads and the tank steamer. These also needed capital, and corporations to own and operate them in each state.

Every step was necessary to develop the business. The aggregate set of choices and the strategic use of the means in specific ways helped achieve the ends over time.

Scaling to Success?

The success of the Standard Oil Company could be attributed to its pursuit of scale and mastering the means and skills to achieve this. The simple goal was to make the volume of its business large by offering illumination and heat to the masses with the highest ‘standard’ quality and at the lowest price.

The quality of the product was never compromised to achieve the ends. Instead, quality became a weapon.

To achieve their ends the best and most efficient manufacturing methods were used. The best talent was sought and paid the best wages at the time, with employee stock ownership and profit-sharing schemes implemented.?

Old machinery and old plants were continuously discarded for new and better ones. They placed manufacturing capability at the locations where they could supply markets at the least cost.?

They spared no expense in introducing the products to the public in every corner of the world. They did not hesitate to invest millions in methods to reduce the cost of gathering, transporting, refining, and distributing the product.?

They did this with little to no borrowings and primarily from cash flow.

The First Scaling Playbook?

The massive amount of capital invested in this audacious pursuit is hard to comprehend, given that there were no precedents or playbooks to follow. There was no Sandhill Rd, no Venture funds to sit on your boards to advise, no Harvard case studies to learn from, no McKinsey to come in and create your strategy, and no YouTube gurus to provide insights and guidance to young entrepreneurs.?

This was a case of building from first principles, experimenting and learning, being capital efficient, being fearless but not stupid, not being profligate and extravagant and staying hyper-focused..?

The crop of technology entrepreneurs funded over the past 20 years could learn from the past and present masters of the craft of strategy making.

Developing your strategy and executing it are entwined activities. They should not be separated, nor should they be outsourced. The very success of your business is dependent on having the right strategy to solve the business and market problems facing you.

Rockefeller built his vast and very successful business using two key skills he developed. He tackled problems using a first principles approach and applied strategic thinking to solve broad, long-term problems. ?

CODA

Only a few modern organizations have developed and used strategic thinking as the corporate muscle to win, grow, scale, and stay relevant in the markets they play in. These companies have dominated their space the same way Standard Oil did. It's not the first to market that succeeds, but the company with the best strategic solution, the ability to learn fast, and the skills and discipline to execute that walks away with the prize.

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