Strategy as Art and Science: Part 3 - The History of Strategy (cont’d)

Introduction

In Part 2 we concluded with a discussion of industrial-era strategies up to about 1960. Growing mechanisation and breakthroughs in technology created new patterns of thinking regarding how better to strategise, or then about how to gain the upper hand against increasingly hostile competition. And in fact, this was the attitude that dominated the competitive landscape – hostility. Ruthless cut-throat tactics were at the order of the day, and size was pursued virtually for the sake of.

This was long before the era of Blue Ocean Strategy where the concept of creating uncontested market space started coming to the fore.

The Creation of New Paradigms

In the late 1960’s and early 1970’s work on the experience curve starting emerging - the concept that there is a direct relationship between escalating levels of production, and production costs. In other words, the more experience a company has making a product, the lower the costs. This also relates directly to diminishing unit costs per volume. Bruce Henderson, who originated this concept, later founded the Boston Consulting Group (BCG).

This approach became a science in itself, setting the basis for strategising the combination of price setting, production volumes, and production costs against competitors. It today finds expression especially within the domain of managerial accounting.

Michael Porter expanded the concept of competitiveness further. In his landmark 1985 book, Competitive Advantage: Creating and Sustaining Superior Performance, Porter suggests the idea of differentiating strategies and strategies focused on specific segments as alternatives to cost leadership strategies. He also created the five forces and value chain models to assist companies formulate strategies based on visual models.

Up till today many strategy purists still believe that one can pursue one of only two strategies, ala Porter – you can be either the low-cost leader, or the (quality) differentiator, but not both. Again this is an approach that Kim and Mauborgne take issue with in their book Blue Ocean Strategy.

Two other important authors appear on the scene at this time - C.K. Prahalad and Gary Hamel (the latter who was honoured as one of the 20 most influential business thinkers in November 2019). In their 1990 article, The Core Competence of the Corporation, they underscore the importance of gaining competitive advantage by not looking only at positioning in terms of markets and competitors, but also by looking inside the company. So one had to consider the environment in terms of both its internal and external dimensions.

During this period strategy became a stand-alone disciple, much more analytical and scientific. Strategy was also moved, in many instances, from the hands of top level executives to dedicated strategy specialists. The effect of this in many cases of course – unintended as it was - was that there developed a distance between strategy generation and implementation.

Of course, with the insights we have now, this should never have become a problem, if one properly understand the difference between strategic thinking and strategic planning. The one is firmly rooted within the domain of the executive, whilst there is specific room within a dedicated strategy section for managing the implementation issue.

During this period Henry Mintzberg was also talking about designing organisations suitable for executing specific strategies from the bottom up. This argument about top-down versus bottoms-up strategising dominates till this day, although, if the concepts of strategic thinking and strategic planning are properly understood within an organisation, the point becomes moot.

Performance metrics (KPI’s) became important, with several initiatives in this regard, with the most important being The Balanced Scorecard: Translating Strategy into Action, by Robert S. Kaplan and David P. Norton, published in 1996.

Strategic Maturity

In 1993 Michael M. Hammer and James Champy published Reengineering the Corporation: A Manifesto for Business Revolution. Reengineering became the new buzzword in the strategy process. There are many reasons for this, but chiefly due to two: shifts brought about by the advances in technology, and the world-wide shift from a predominantly industrial-based economy, to service industries. A new paradigm was needed.

In 1999, Blown to Bits: How the New Economics of Information Transforms Strategy, by Philip Evans and Thomas S. Wurster of BCG, made a convincing argument that the internet changed everything. This sort of questioned the reengineering approach, and theorists started questioning the legitimacy of reengineering.

Of course it should not have – if one understand the concept of doctrine properly, one realises that technology, experience and theory operate in an interactive and syncronous way. So each new technological breakthrough adds to previous knowledge bases, each one bringing with it plenty of opportunities to create or lose competitive advantage. The same is true for many major strategic shifts, from big data, AI, global inter-connectedness, and technology to even the global financial crisis; each one is here to stay and cumulatively add to previous lessons learned.

Despite all these clever approaches to strategising, the financial crisis in 2008 showed that some events are bigger that we can plan for. The crisis created new interests in ways to deal with global risks and it triggered many publications, including the 2010 republishing of Black Swan: The Impact of the Highly Improbable by Nassim Nicholas Taleb. It also triggered a renewed interest in the concept of scenario-based planning.

The legacy of this era is of extreme importance to the discipline of strategy, yet the era is characterised by many new concepts, fads, and ideas, some of which did not last long. They all did provide the basis for the next era of strategising though, which was to draw together many of the concepts developed by people from Taylor to Taleb….

Holistic Strategic Frameworks

Modern-day strategising takes place within a fluid, fast-paced technologically advanced world. Yet, as illustrated in Part 1 of this series, the human factor becomes ever more important. To this end modern strategic thinkers have to learn the lessons from past, and adapt them to the new challenges of present and foreseen environments. In so doing, a number of important strategic themes emerge:

• Agility (Doz, Kosonen). One has to acknowledge that it has become difficult to strategise in an ever-changing environment. To this end, concepts like strategic agility, organisational flexibility, and resilience become more important – i.e. by making strategy an art. An ability to do proper and constant environmental scanning to ensure strategic navigation is key here. An example of this is to be found in Fast Strategy: How Strategic Agility will Help You Stay Ahead of the Game (2008) by Yves Doz and Mikko Kosonen.
• Simplification (Kim, Mauborgne). Closely aligned to the previous point - if there are so many variables to consider, why not reduce them? Blue Ocean Strategy (2005) by W, Kim and Renee Mauborgne suggests that focusing on finding uncontested market space represents a form of strategy formulation. These are approaches that, whilst considering the past, also focus more on qualitative than quantitative approaches to strategising.
• Leadership and Values (Drucker). In present difficult times, driven by an inter-connected world, regulatory compliance issues, and challenges with corruption, the role of strong leadership and values becomes paramount. There are many books and articles on the subject, for example HBR’s 10 Must Reads on Leadership by Peter F. Drucker et al., 2011.
• Fusion Tactics (George, Welch, Liker, Collins). Lean Six Sigma (2002) by Michael L. George brings together the Six Sigma approach (developed by Motorola in 1985 and embraced by Jack Welch for GE in 1995) with lean concepts to minimise waste and take it beyond manufacturing. Benchmarking is an important concept here. The Toyota Way: 14 Management Principles from the World’s Greatest Manufacturer (2003) by Jeffrey Liker comes to mind, as well as Hoshin Kanri: The Strategic Approach to Continuous Improvement by David Hutchins (2008). Hoshin Kanri may be viewed as Balanced Scorecard on steroids...

The Future

There seems to be general consensus - for now - among thought leaders within the domain of strategising, that future approaches need to consider the following:

• Consider having a multitude of competitive advantages. Because the environment is so fluid and fast-changing, the organisation needs to operate in similar fashion. Becoming fixated on the capabilities that gave you the advantage initially, not considering future demands, is a sure recipe for disaster. Examples include IBM for PC's, Blackberry for phones, Caterpillar, and the large steel mills in the US.
• Future thinking is key. Making strategic assumptions about the future, rather than using the present as a point of departure, will be critical. Tools to do this are numerous, the most well-known being scenario-based planning.
• Involve Everyone. Strategy as Art and Science means that one deliberately embarks on a process of strategic thinking, strategic planning, strategy implementation, and risk management, involving the whole of the organisation. People want to be involved in their own future. Strategic thinking can be done by top management, but involving the ideas of the rest of the organisation. Developing the plans have to be done from bottom-up. Balanced Scorecard remains an excellent tool in this regard.

To be continued...

References

1.     Aurik, J., Fabel M., Jonk G. 2014. The History of Strategy and Its Future Prospects. Dallas: ATKearney.

2.     Corporate Strategy Board. 1999. Proceedings in Daylight: Frontier Practices in Challenging Strategic Assumptions. Washington D.C: Corporate Executive Board.

3.     Ilbury, C., Sunter C. 2007. Socrates & the Fox: A Strategic Dialogue. Cape Town: Human & Rousseau and Tafelberg.

4.     Kim W., Mauborgne R. 2005. Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant. United States of America: Harvard Business School Publishing Corporation.

5.     Loewen J. 1997. The Power of Strategy A Practical Guide for South African Managers. Johannesburg: Zebra Press.

6.     Pfeiffer J. Goodstein, Nolan T. Understanding Applied Strategic Planning: A Manager’s Guide. California: University Associates, Inc.