Strategy: Theory vs Practice

There is already WAY too much content about strategy on LinkedIn! But, this blogpost will avoid platitudes and take a different lens to strategy by incorporating the insights we've gleaned from complexity sciences and systems thinking. I'll start with a famous aphorism attributed to Yogi Berra which is not just funny but very profound:

“In theory, there is no difference between practice and theory. In practice, there is.”

In theory, you learn things like "If B > A and C > B, then C > A" and in real-life you encounter people that would pick Apple over Orange and Kiwi over Apple, but Orange over Kiwi when offered that choice. Much of the decision making apparatus of our brain is opaque to our introspection. Many times, we make decisions sub-consciously and post-rationalize them when questioned by others later. We need to acknowledge the logical and psychological aspects of human decision making. Humans are humans - both inside (employees) and outside (customers) the corporation.

Messing with Complex Systems

Here is a real-life example that Rory Sutherland often talks about: Any proposal to create a soft drink in a competitive landscape dominated by Coca Cola with the following idea would never get approved in a typical corporate setting: “A drink that is more expensive that Coke but comes in a tinier can?and here is the best part, it tastes disgusting!”.

I'm not kidding - the feedback from consumer trials of Red Bull was a resounding "Yuk ??!" One criticism read, "I wouldn’t drink this piss if you paid me to" ??! And yet, that drink is now very successful with billions of dollars of sales volume that has been consistently growing from 2015 to 2022. How is that? As it turns out, anything that has a psychotropic effect on us is better off tasting weird to us!

When it comes to building new customer experiences one of the traditional "theoretical" approaches is a 'focus group'. But, when you introduce something novel, one key lesson you'll learn is that it is impossible to accurately predict the behavior of complex systems. Jeff Bezos understood this very early on. Watch him explain this elegantly in this video. He says:

"It is anywhere between very difficult and impossible to guess how consumers are going to behave. How a mass audience is going to do anything in the future is very hard to determine. The easiest way to determine it, is just to do it and see what happens. And I think a lot of companies get that wrong. They put too much energy into like arguing about how consumers are going to behave and by the time they're done arguing, they could've just done it and seen what happened... Focus groups and things like that are fraught with peril. People don't know, really typically, what they will do. If you ask them what you think they'll do, they'll try to tell you the truth but they don't really know."

We live in a world, where the the rate of change will NEVER be slower than today. Let's pause and think about it for a moment! If so, we need to view the corporation as a complex system living in an uncertain and rapidly changing environment over long periods of time and enable rapid experimentation.

What is your management system?

Professor Roger Martin (writer and former Dean of the Rotman School of Management at the University of Toronto) lays out the following questions when it comes to strategy:

1. “What is your winning aspiration? The purpose of your enterprise, its motivating aspiration.
2. Where will you play? A playing field where you can achieve that aspiration.
3. How will you win? The way you will win on the chosen playing field.
4. What capabilities must be in place? The set and configuration of capabilities required to win in the chosen way.
5. What management systems are required? The systems and measures that enable the capabilities and support the choices.

It is key to note that each of these questions are interrelated. For example, if you get the first 4 right and don't care about question 5, the "system" in which your people work in, then you are doomed to fail. Question 5 deals with things like the organizational design, policies, incentives, etc. that the organization must adopt to support its strategy.

Many good ideas fail because of the way the work is organized - complex interdependencies between cross-functional teams and bottlenecks could impede the flow of work. But, the visible symptoms could be employees facing burn out while blaming each other for not being "accountable".

Martin says that the management systems' choice should be aligned with the strategy, the capabilities, and the winning aspiration, not with industry norms or "best practices". Management systems' choice should be adaptive, flexible, and responsive, not rigid, fixed, or reactive.

But, mainstream management views the corporation as a mechanistic system and seeks certainty instead. For example, we track timelines, not queues. The typical model of organizational strategy goes like this: strategy is choosing - performed by "leaders" sitting in their ivory towers or board rooms; execution is doing - the pawns on the ground. But, Roger Martin, fully embracing complexity, explicitly calls out that strategy is the same as execution. As he elegantly put it,

"As always, upstream theories, and the decisions based on those theories, constrain downstream experiences. In this case, an upstream theory that divides a company into choosers and choiceless doers turns empowerment into a sham.”

The $21 billion dollar mistake

This is the incredible story of how Eric Yuan, the founder of Zoom. He moved to the US and joined Webex, a web conferencing startup, where he led the engineering team. Webex was later acquired by Cisco.

Eric had a vision of a video conferencing system that would work seamlessly on smartphones. He pitched his idea to Cisco, its executives did not see the potential of his idea and turned him down.

That was a costly mistake for Cisco, because Eric Yuan left the company and founded Zoom Video Communications, which became one of the most successful and popular video conferencing during the pandemic. After all the initial hype during the pandemic, Zoom's market capitalization is over $21 billion as of this writing.

Could our management systems be making the same mistake as Cisco by being oblivious to the creative ideas that are hidden away inside our employees' heads?

I'll wrap up with a pertinent quote from Roger Martin:

“?????? ???????? ?????????? ???????? ???????? ?????????? ?????????????????? ???????? ?????? ???????????????? ????. ?????????????????? ???????????????? — ?????????????? ???? ???????? ?????????? ????????????.”

and Nassim Nicholas Taleb:

“Corporations are in love with the idea of the strategic plan. They need to pay to figure out where they are going. Yet there is no evidence that strategic planning works—we even seem to have evidence against it.”

[In case you missed my previous article, it was on the topic of increasing the internal variety of our organization so as to effectively deal with the increase in external variety!]