Since its high tide in the 1970s, the strategic planning school, led by writers like Igor Ansoff and Peter Lorange, has fallen out of favor. They were the heirs of von Bülow. Henry Mintzberg has played the role of a polemical Clausewitz, his efforts culminating in The Rise and Fall of Strategic Planning, a book of over 400 pages devoted to a detailed critique of the planners, the final chapter of which also tried to salvage something positive from their methods.8 It is sobering to realize that this book appeared as late as 1994. It is sad that it expends so much effort on describing what you should not do, whereas Clausewitz and von Moltke concentrated on what you should do. Mintzberg points out that “formal planning does not create strategy so much as deal with the consequences of strategy created in ”
“as deal with the consequences of strategy created in other ways,”9 ways he describes elsewhere as “crafting strategy.”10 The order is critical: first the strategy, then the plan.
If the notion of strategy as a plan is moribund, the notion of it as a framework for decision making is gaining ground. The change is being led by practitioners. In an article published in 2001 that rediscovers some of the principles of von Moltke’s essay just 130 years later, Kathy Eisenhardt and Don Sull quote examples of companies including Yahoo! and eBay, Dell and Cisco, Miramax and Nortel as conceiving of strategy as “simple rules” which guide decision making.11 The examples make the idea sound new and modern, whereas it is merely enlightened.
Among those adopting the more enlightened view are planners themselves. Daniel Simpson spent nine years as head of strategy and planning at a $3bn consumer goods company headquartered in the US. Disillusioned by the results of planning and the need to absorb much of the literature ”
“Mintzberg toiled through (some of which, he opines, is “not very helpful” and a portion of which he describes as “complete rubbish”), Simpson concludes that the keys to success are “an overall sense of direction and an ability to be flexible.”12 The example of successful practice he quotes is Welch’s “planful opportunism,” one case in which we know for certain that von Moltke was a direct influence. Welch himself had great influence in this area, not only because of the status of GE and his record, but also because at the beginning of his tenure GE was generally recognized as the leading exponent of strategic planning. Welch’s view was that as a result strategic thinking had almost disappeared, and in 1984 he dismantled the planning system.13
Simpson adds an interesting comment after citing Welch. “I think more successful companies are developed through this sort of planful opportunism than through the vision of an exceptional CEO,” he writes. “They aren’t in the media spotlight as much as companies with the visionary CEO, but they are more common.”14 This is no surprise; exceptional CEOs are by definition uncommon. “However, it also demonstrates that the original intention of the Prussian reformers, to create an intelligent organization whose performance did not depend on its being led by a genius, is as true in business. And if there is evidence that our thinking about strategy is catching up with von Moltke’s, at this point we are still behind. We are extraordinarily reluctant to admit that luck plays a part in business success. The media create a cult of CEO heroes and their salaries are now such that restless shareholders have become rebellious. We would do well to remember that while a leader’s reputation is ultimately based on success, “how much of it is in fact down to his own efforts is very hard to say.”
This is a serious matter. A recent scholarly article argues that the greater a CEO’s celebrity, the greater their perceived control over the actions and performance of their firm. This leads CEOs to continue to take actions associated with their own celebrity, and to create hubris.15 This poses a double jeopardy: the delusion that one can control ”
“external events (i.e., a denial of friction); and the delusion that one is solely responsible for success, with a concomitant tendency to command a great deal more than is necessary (i.e., a reversal of a core principle of mission command). Hubris encourages a return to the deadly cycle of organizational stagnation we examined in Chapter 2. As I pointed out above, because friction is rooted in human finitude, ignoring it is to play at being God. To attribute to CEO-heroes the ability to control events and be immune to good or bad luck is at heart a metaphysical worldview reminiscent of Greek polytheism or even, at the extreme, medieval theology.
Strategy, then, demands a certain type of thinking. It sets direction and therefore clearly encompasses what von Moltke calls a “goal,” “aim,” or “purpose.” Let us call this element the aim. An aim can be an end-point or destination, and aiming means pointing in that direction, so it encompasses both “going west” and “getting to San Francisco.” “The aim defines what the organization is trying to achieve with a view to gaining competitive advantage “How we set about achieving the aim depends on relating possible aims to the external opportunities offered by the market and our internal capabilities. The process of thinking strategically involves relating three points of a triangle, as in Figure 11.”
“A good strategy creates coherence between our capabilities, the opportunities we can detect, and our aims. Different people have a tendency to start with, and give greater weight to, one or other of these three factors. Where they start from does not matter. Where they end up does. The result must be cohesion. If any one of these factors floats off on its own, dominates thinking at the expense of the others, or is simply mismatched, then in time perdition will follow.”
“The strategy triangle confronts us with the first observation von Moltke makes about the nature of strategy: reciprocity between ends and means. Both are ambiguous and interdependent. In most of our day-to-day problems, the end is a given. It is fixed and we just have to work out the means of achieving it. In Figure 11, the two-headed arrows indicate that our consideration of the means (our capabilities and the opportunities we face) codetermines the ends (our aims).
Reciprocity pervades not only strategic thinking but decision making and action. Because the effects of our actions depend not merely on what we do but on the actions of other independent wills, strategy will need to adapt to the newly created situations which result. It is thus a “system of expedients.” The task of strategy is not completed by the initial act of setting direction. Strategy develops further as action takes place, old opportunities close off, new ones arise, and new capabilities are built. The relationship between strategy development and execution is also reciprocal. Doing strategy means thinking, doing, learning, and adapting. It means going round the loop. The reappraisal of ends and means is continuous.
In assessing ends and means, we have above all to be realistic. Developing strategy is an intellectual activity. It involves discerning facts and applying rationality. Leadership is a moral activity. It involves relating to people and generating emotional commitment. Developing a strategy around pre-existing emotional commitments is courting disaster. When people convince themselves that they have the capability to do something that in fact they do not, just because a lot of other people seem to be doing so, or convince themselves that the market will love the latest thing to pop out of R&D, just because their own engineers love it, strategies fail. “When companies set themselves the aim of growing from an also-ran to a market leadership position in two years simply because doing so will boost the CEO’s share options, shareholders’ money is squandered on failed acquisitions and hopeless investments.
Many of the best-known strategy development tools – such as Porter’s five forces and value chain models, the matrices for displaying competitive position used by BCG or McKinsey, cost analysis, supply curves, market segmentation, and so on – are in fact tools for analyzing the situation and trying to work out what drives success. Useful though they are, they do not produce strategies. They help to sort out information, simplify the complexities of reality, and focus attention on the essentials of the situation, internal or external. They are only effective if they generate insight into the basis of competition. “A notion central to Clausewitz’s thinking about strategy was that war aims and the strategy adopted to realize them should be developed from an understanding of what I am calling the “basis of competition,” and what he called the enemy’s “center of gravity.” “Making out this centra gravitatis in the “enemy’s war effort,” he wrote, “to identify its spheres of influence, is a central point of strategic judgment.”16 The term, like friction, is borrowed from mechanics:
Just as the center of gravity is always to be found where the greatest mass is brought together, and just as every blow delivered against the load’s center of gravity is the most effective… so it is in war. The forces of every protagonist, whether a single state or an alliance of partners, have a certain unity, and by virtue of this some coherence; it is where there is coherence that we find analogies to a center of gravity. There are therefore certain centers of gravity in these forces, the movement and direction of which govern other points, and these centers of gravity are to be found where the largest forces are gathered.17”
“So it is in business too. Businesses engage in a vast range of activities. The art of strategic thinking is to identify which of them is the decisive differentiator, the determinant of competitive advantage. It involves mastering and sorting through a vast range of activities and simplifying them accurately down to the essentials which make the difference. The true strategist is a simplifier of complexity. Not many people can consistently do it well.
Clausewitz knew that. Indeed, so rare did he judge the qualities leading to strategic insight to be, that he gave the chapter in which he describes them the title “Military Genius.”18 We should treat this much-abused term with caution. Clausewitz was using it in the precise sense defined by Kant: genius is a gift of nature which intuitively develops the rules of human practices such as the arts.19 Clausewitz’s comments are worth quoting:”
“If he is to successfully prevail in this constant struggle with the unexpected, then two qualities are essential: firstly a mind which even in this heightened darkness is not without some shafts of inner light which lead him to the truth, and then the courage to follow that dim light. The first can be characterized with the French expression coup d’oeil and the second is conviction.20
This sounds a bit dangerous. It could be an excuse for stubbornness, for not listening, for bees in the bonnet and private agendas. That is why it is rare. The key is determination based on insight. Clausewitz realized this:
There are people who possess a highly refined ability to penetrate the most demanding problems, who do not lack the courage to shoulder many burdens, but who nevertheless cannot reach a decision in difficult situations. Their courage and their insight stand apart from each other, never meet, and in consequence they cannot reach a decision. “Conviction results from an act of mind which realizes that it is necessary to take a risk and by virtue of that realization creates the will to do so… the sign of a genius for war is the average rate of success.21”
“The phenomenon of making good judgments in uncertainty has since been the object of careful examination. It is about the use of intuition.
Psychologist Gary Klein has made a study of intuitive decision making. By observing experts in a given field in situations in which they made decisions, Klein realized that they did not follow the conventional “rational model” of developing and evaluating options before choosing between them. They seemed to go straight to the answer, using what appeared to nonexperts, and indeed often to themselves, to be a “sixth sense.” On analysis, the sixth sense turned out to be perfectly rational. It was based on pattern recognition. Through years of experience in their field, experts build up patterns of expectation, and notice immediately when something unusual occurs which breaks the pattern. These signals make the “right” decision obvious to them. It looks to others and feels to them to be intuitive, but the intuition is schooled, and rational. Clausewitz gives it the French name coup d’oeil, the “glance of a practiced eye. Germans more usually refer to Fingerspitzengefühl, the “feeling in your fingertips.” In the Anglo-Saxon world things take place more viscerally – it is “gut feeling.” Whatever the language, schooled intuition is the basis of insight.22 It was this discipline which von Moltke mastered in his domain of military strategy.
Insights into the center of gravity of a business and hence innovative strategies tend to come from people of long experience who have an unusual capacity to reflect on that experience in such a way that they become aware of the patterns it shows. This awareness enables them to understand how all the elements of their experience relate to each other so that they can grasp and articulate the essentials. Because of this, what to others is a mass of confusing facts is to them a set of clear patterns making the answer to many problems obvious. ”
“Hence they have the courage to act. Because they base their decisions on that understanding, and because that understanding is sound, they tend in the long run to get more things right than wrong and so demonstrate the above-average success rate that Clausewitz identifies as marking them out. We tend to speak of them as having “good judgment.” In their field they do. But because it is grounded in pattern recognition, the quality of their judgment is dependent on context and they do not necessarily display it in every area of human activity.23
A short story may illustrate the point.”
“A few years ago, I visited a manufacturer of domestic boilers. At the time, the company was number three in the market and was not only making good returns but gaining share, closing the gap with the number two player. I asked all the top executives why the company was so successful. One said it was the quality of the product – but he admitted that the differences with competitors’ products were small. One said it was the brand – but had to admit that the market leader’s brand was also very strong. So it went on: R&D, technology, production efficiency, delivery times, customer service – all had their advocates, but none in itself felt compelling.”
“My last interview was with the managing director. I asked him once again why the business was so successful. “Let me tell you how our business works,” he said. “Almost all of our domestic business is for replacement of existing boilers. People replace boilers when their existing ones break down. What do you do when your boiler breaks down? You call the installer,” he continued, answering his own question. “When he tells you the boiler is too old to repair because he can’t get the parts, what do you do?” He paused. “I’ll tell you. You do what he suggests. And when you ask him which new boiler to install, he tells you that too. So 90 percent of all purchasing decisions are made by the installer.” He paused to let this sink in. “Our business,” he said deliberately, “is about service to the installer. “But I am the only person around here who gets that. They all think I’m an old man with a bee in his bonnet.” He looked me in the eye. “We are being successful because we offer our installers better service than any of our competitors. But we can do even better. I know that if we gear up the whole company toward optimizing service to the installer, right across the value chain, we can become market leader.”
It all seemed very simple. It made perfect sense. “The company was clearly doing more to enhance service to the installer than any other player in the market. Everyone knew that it was important – but so were lots of other things. The managing director was the only one there who regarded it as essential. He knew every detail of his business, built up over 30 years of experience. He did not only know every tree in his particular wood, he could describe the state of the bark on each one. However, he was the only one who could readily describe the shape of the wood. He had grasped the basis of competition, the center of gravity of the business, and hence the source of its competitive advantage.
This informed all his operational decisions. He wanted to increase the number of visits installers paid to the company’s site – which was already more than any of their rivals – and build a new training center. He was obsessed with the quality of “its installation literature. He was ready to invest whatever it took to increase spare parts availability at the distributors so that installers did not waste time waiting for a part. He wanted the new range of boilers the company was just developing to be energy efficient, quiet, and reliable, but above all he wanted them to be easy to install. And so on. And it was working.
He wanted to run some strategy workshops to focus all his top team on optimizing service to the installer. They were already making their implicit strategy happen, but as it became explicit and the top team grew more aligned, so decision making and execution became more focused. At the time of writing the company has overtaken the number two player, and is closing the gap with the market leader.”
“In this example, service to the installer is the source of competitive advantage my friends are seeking to exploit. Their aim is to achieve leadership of their chosen segments. They have identified becoming the supplier of choice to the installer as an opportunity across the market, and by excelling at that they are unhinging the position of their major competitors. They already have the capabilities to do so, but they are investing further in those capabilities and creating others. They are doing what all successful strategists do, which is to build further on their existing strengths. They therefore have a coherent strategy – they have linked up all three corners of the strategy triangle.”
“Their capabilities took time to build and have become complex and interlocking. They have allowed the company to build a position in the market which is sustainable because they also create barriers around it, making it difficult for competitors to do the same thing as well as they do. The proposition they offer installers is a powerful one. That results in further intangible advantages such as their reputation. Their proposition has become hard to copy, and by continuing to invest in its strengths, the company is maintaining its advantage. Their strategy informs all their decisions and “their operational plans. It is being pursued as a central idea under continually evolving circumstances.
Their competitors are having to play a similar game, because service to the installer is the center of gravity of the business as a whole. Other businesses admit of more than one center of gravity. In the airline business, one can compete on the basis of service, focusing on the business traveler, but in the last decade some have realized that another option is to compete on price, and the low-cost airline – offering a very different value proposition – has changed the business as a whole, based on an insight into another set of market opportunities and a different set of corresponding capabilities. “Centers of gravity are not static. For example, changes in technology have altered the basis of competition in the computer business from the period of the CPU, through the distributed server, to the PC, to the laptop. Failing to shift its position fast enough, the original dominant player, IBM, lost its position, went through a crisis, and has emerged as a survivor in a very different and more diverse competitive landscape.
Identifying the competitive center of gravity is a first step in setting direction and will inform further decisions. The most fundamental strategic decisions are those determining the compass heading and/or destination. From those follow further decisions about investment, resource allocation, and actions. The direction has to be turned into a path, the route of which is always informed by the center of gravity, but which also takes account of changing circumstances. “That means that making the strategy happen will require a whole series of decisions on the part of a wide range of people.
Being made in the context of strategy, those decisions will have the reciprocal relationship between ends and means that is characteristic of it. As they involve overall direction, they will tend to be cross-functional and, as von Moltke observed, they will tend to be “one-offs” because every situation is unique. If we approach them with the natural, intuitive decision-making approach described by Gary Klein, we run a serious risk of getting things wrong. Unless we are strategy specialists (as some consultants are), it is unlikely that our experience base will be appropriate and we may tend to prejudge an issue as being of a certain type. That is the main reason most of the functional executives in the boiler company could not see that service to the installer was the center of gravity. They all knew that it was important. There is an enormous difference between knowing that something is important and realizing that it is the basis of competition.
“Having an inappropriate experience base is dangerous when the nature of the issue itself is at stake. We are also liable to become emotionally anchored on a certain solution or type of solution. We therefore need to put together a diverse team and run a disciplined process of going round the loop, moving from the framing of the question itself, through option generation, to option evaluation, and back to reframing the question. It is a characteristic of high-performance teams that they go round the loop more quickly and reframe more “often than average ones. It is usually reframing that generates creative solutions. It is because it involves systematic, “going-round-the-loop” thinking rather than linear thinking that von Moltke can refer to strategy as a “free practical art.”
In order to provide guidance for decision making under continually evolving circumstances, strategy can be thought of as an intent.”
Excerto de: Bungay, Stephen. “The Art of Action: Leadership that Closes the Gaps between Plans, Actions and Results”. iBooks..
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