THE JOURNAL OF LEADERSHIP APPLICATIONS
Vol. 2, No. 5
The Jungle Called Strategy Development
© 2003 William A. Cohen, PhD, Major General, USAFR, Ret.
Strategy is a jungle, or at least the development of strategy is. There are so many approaches to planning and developing strategy, all of which claim great success, that one would think that business strategists would be successful in their endeavors at least 90% of the time. The unfortunate fact is that strategists are lucky to reach all their objectives on a consistent basis even half of the time. Yet brilliant practitioners and professors have all labored over strategy systems to develop what on the face of it are very innovative systems. Yet, results have been very inconsistent. These means to strategy fall into five separate categories:
- The Method Approach
- The Replication Approach
- The Insight Approach
- The Concept Approach
- The Principles Approach
Let’s look at each.
The Method Approach to Strategy
With the method approach, the strategist is required to follow a precise series of actions based on a specific methodology. The very first method designed to develop business strategy was invented in 1960 by Bruce Henderson, president of the Boston Consulting Group. It is the well-known BCG Matrix with “cash cows,” “stars,” “dogs,” and “problem children” placed according to market share and market growth rate in a four-celled matrix in its original version.
Henderson noted that companies that dominated their markets tended to be more profitable. Businesses that were in this category were termed “cash cows.” It followed logically that if companies could dominate a growing market, they would have both growing profits an assured future. Companies that were in this category of the four-celled quadrant were classified as “stars”. Obviously, strategists should allocate resources to these businesses to enable them to capture and retain shares of a market with a high growth rate.
Where would these resources come from? Some would come from their “cash cows.” Others would come from “dogs.” These were businesses owned by the company that had low market share in a market with a low growth rate. You got rid of “dogs.” That freed up more resources to invest in “stars.” You looked carefully at “problem children” in high growth rate markets, but with a low market shared. With these companies, you committed the resources to capture additional market shares and turn them into “stars,” or cut off resources, turned them into “dogs,” and dropped them.
As time went on, the important entry variables were refined by BCG and reworked by others. Basically, this method approach is a means of deciding where to allocate resources for grand strategy. Called portfolio management, it worked well for that purpose alone, but wasn’t much good for developing strategies for anything else. Other methods worked well for say, determining tactics depending on the stage of the product life cycle, etc. The point is, method strategies can work for a specific purpose, but they ignore other aspects of the situation such as environmental and assets which can significantly affect outcomes.
The Replication Approach to Strategy
With the replication method, the strategist analyzes the situation, uncovers aspects of the situation, such as environmental and assets, which can significantly affect outcomes, finds out what works, and does the same thing. The most well-known replication method used in business strategy is the PIMS or profit impact of marketing strategy. The project was initiated and developed at the General Electric Company from the mid-1960s and expanded upon at the Management Science Institute at Harvard in the early 1970s; and finally is still carried on by The Strategic Planning Institute, like the Boston Consulting Group, in Boston. Today, more than 3000 separate strategic experiences are in the PIMS database. With PIMS, the strategists is given what are called “strategic benchmarks.” In sum total, this is the experience of businesses in the PIMS database, which are situationally comparable to the strategist’s business. The strategist develops a strategy based on this information.
Without question, what PIMS supplies is good intelligence, and any strategist would be a fool to ignore it. At the same time, it must be recognized that every strategic situation is different, even to the personality of the company and competitor leaders involved, and whether there was a full moon and its affect on the tides. One small difference can cause a significant shift in results. Moreover, given benchmarks that indicate a certain result 99% of the time, if you happen to fall into that 1% outside of the benchmark results, you have a 100% failure.
The Insight Approach to Strategy
The idea with the insight approach is that we gain valuable insights into business insights by looking at some other discipline or field of human endeavor. The most popular along these lines is warfare and the notion that “business is war.” There was even a best selling book, Marketing Warfare by Trout and Ries (McGraw Hill 1986) in which the book was dedicated to “one of the greatest marketing strategists the world has ever known: Karl von Clausewitz.”
The connection with war is because the study of strategy started with warfare and the concept that there are military principles for success in strategy has been accepted for several thousand years. It is perhaps for this reason that the very word “strategy” comes from the Greek word “strategos” which means “the art of the general.” There are insights to be gleamed from military strategy, and part of my own work is based on both my lifelong study of military strategy and my experience as a general. However, there is, or should be, a cautionary note here, and that’s where people get carried away.
Attempts to copy warfare as a model for business strategy have generally failed. Except in the sense of commitment to win, there is no such thing as “marketing warfare,” for business is not war. This is not only because war necessitates the taking of human life while the practice of business does not, but for other basic reasons.
First, war is not a continuous activity. A war is fought, and then it is over. It may start up again later, but for the time, it is done. Successful and unsuccessful forces are disbanded, nations frequently disarm and citizens look for a “peace dividend.” A successful business goes on and on nonstop. In the United States, there are businesses that are more than a hundred years old. In Europe and Asia, there are businesses that are several centuries old. Some of these businesses haven’t missed a day. In battle, even The Hundred Years’ War came to an end.
Moreover, speed is always crucial to war strategy. Colonel John Boyd, a brilliant Air Force strategist developed what he called the OODA loop. “OODA” stands for observation, orientation, decision, and action. From personal observations as a fighter pilot during the Korean War, he theorized that anyone that could “get inside” a competitor’s OODA loop (that is, do one of the four parts faster than his opponent) would invariably emerge victorious. His theories provided considerable insight into modern land combat to the extent that it is said that at one time the U.S. Marine Corps completely altered its concept of land battle based on his theories.
After Boyd’s death some business strategists adopted his concepts of the OODA loop and ancillary theories. Even the editors of Harvard Business Review were impressed, and they published an article about Boyd’s theories some years ago. But alas, while the OODA concept may have universal concept in warfare, it has much less application to business. As Peter Drucker has noted, astute business competitors actually can succeed by electing not to be first in the market, but in allowing someone else to do the groundwork and make their mistakes first. So speed, at least when it comes to being first to market, may not always be all that important. Despite the success of Apple Computer in creating the computer market, which in itself was a masterful application of basic strategic principles, it is IBM, IBM clones and Microsoft who are currently the market leaders in this field.
So insights provide just that, insights. They are not a consistently system of successful strategy development.
The Concept Approach to Strategy
In the last section we looked at strategy for insights and John Boyd’s OODA loop was noted as an example of caution in looking at warfare, The OODA loop is an example of the concept approach. The concept is the notion of observation, orientation, decision, and action and the idea of moving faster than a competitor by being quicker in one or more of these phases. If speed is important in a particular business situation, than this idea works. If your object is to be the first into the market with a new product concept, you can spend additional time, energy and resources on a premium business intelligence system that can put you ahead of competitors. Foregoing the idea of buy-in that was one of the essentials of Total Quality Management, you can make it a one-person or small group decision, and forget about the niceties of ownership and charge forward to pick up the pieces later. When speed is important, OODA works just as effectively in business as Boyd found it to work in aerial combat. However, when some other aspect in the situation makes something else more important, say the very limited resources you have available to spend, than the OODA is not the concept you want to adopt.
The Principles Approach
With the principles approach, you seek basic truths that are essential to make any strategy work and apply them to the situation. Sometimes the principles may conflict in application, or may be irrelevant to a particular situation. That’s okay so long as they are considered. Moreover, the use of principles does not mean that you cannot use one or more of the previous approaches. If you your organization employs one of the method approaches, consideration of economizing to mass or use of the indirect approach can only enhance your application of the method employed. Moreover, as shown in last month’s newsletter there is also a method by which you can employ the essential principles for business strategy more effectively.
The 10 Essential Principles of Business Strategy
For those that missed them last month, here are the principles for successful business strategy that I have developed.
- Commit Fully to a Definite Objective
- Seize the Initiative and Keep It
- Economize to Mass Your Resources
- Use Strategic Positioning
- Do the Unexpected
- Keep Things Simple
- Prepare Multiple Simultaneous Alternatives
- Take the Indirect Approach to Your Objective
- Practice Timing and Sequencing
- Exploit Your Success
For those interested in learning more, please turn to last month’s newsletter. Also watch for the publication of my new book The Art of the Strategist:10 Essential Principles for Leading Your Company to Victory to be published by AMACOM in 2004.
THE LESSON: There are many ways of approaching strategy, most of which do not work under all conditions. Basing strategy on fundamental truths developed over the millennium can be incorporated with other systems and will help you lead any organization to victory.