Nothing What To Do Next?

Managers devote time to strategy-making because they want some degree of certainty that they can direct their firm towards success. The mass of strategy literature suggests two dimensions along which this certainty might be influenced.

The first is prediction. If the future can be predicted, the manager can drive the firm to a position where it will have an advantage. The second is control. If the manager can create a favorable environment, the firm will have an advantage. These are not alternatives, but rather levers managers might apply to determine the best strategy to pursue in their company’s environment. Using prediction and control as levers, I can organize everything I know about strategic thinking into one of the following four categories:

Planning and adaptation
According to much current mainstream strategic-management thinking, firms should either try harder to predict better (plan) or move faster in response to changes in the environment (adapt). Which prescription a company follows depends upon how confident it is in its ability to predict changes in the environment. But both of these approaches rely on the firm’s ability to understand and make sense out of the environment in order to set strategy.

Visionary and transformation
But there is a more proactive managerial approach to the environment. If managers have market power (say, working for a government or for Microsoft), they can dictate what will happen in the environment, imposing their view (visionary) on the landscape and ensuring the position of their organization within that environment. For a more typical organization, one without that type of power, partners and customers can be enlisted to jointly create (transform) the environment, developing a new product, company or even market.

What I’ve proposed so far is theoretical; let’s see what it looks like in practice. Imagine a popular independent radio station, KEEP180, that plays a wide range of new music from country and western to French rap. The station broadcasts locally, and has a growing online audience. It’s funded by donations from listeners, and is facing a strategic decision about where to invest its limited resources. What should it do next?

Planning. The station might carry out market research and predict an explosion in a new genre of French music. It could then invest in bringing that music to its audience and consequently capitalize on higher ratings.

Visionary. Alternatively, the producers at KEEP180 may simply love the French language, and may build a format exclusively on French rap and other novel French music, knowing they will own the category if they can establish it.

Adaptation. Given the high rate of change in technology and customer demand, the station might devote its efforts to watching other independent stations and talking with customers, ready to move quickly as new trends are identified.

Transformation. Finally, the station might partner with a French recording label and a current American music icon to create an explosion in French rap music, selling music online, where all of them profit from the new environment that they create together.

From this exercise, you can hopefully imagine each course of action to be plausible. And while your intuition may identify one as most effective, what I hope you see is the assumptions each makes. Planning assumes that information, particularly historical information from the environment, is reliable enough to provide a base for your strategy. Visionary assumes you have enough power to impose a solution on the environment.
Adaptation assumes you are faster to respond to changes than your competitors. And transformation assumes you can put together partnerships which will successfully create a new situation.

PREDICT IF YOU CAN, BUT BEWARE OF UNCERTAINTY
Most strategy today is based on prediction and planning. Market research, scenario planning, revenue forecasts, comparables analysis and real options are all popular and common strategies that demand access to reliable historical data.

But the increasing level of uncertainty generated by fickle customers, creative competitors and even government regulation renders those thoughtful predictions useless. Visionary approaches are only viable for a small number of already powerful organizations. And adaptation offers little sustainable advantage as competitors have access to the same information.

This explains recent interest in transformational strategies, not reliant on prediction, that give the manager access to the alternative lever of control. Characteristics of transformational strategies include:

Starting with your means. Take action based on what your company has available (what you have, what you know and whom you know) instead of trying to set goals to reach a predicted optimal position.

Setting affordable loss. Pursue interesting opportunities without investing more resources than you can afford to lose. Set a limit on downside potential.

Forming partnerships. Strategy is created jointly through partnerships to create new opportunities where everyone who commits benefits.

Leveraging contingencies. Surprises are good. New developments encourage imaginative rethinking of possibilities and continual transformation of targets.

The next time you sit down to think about strategy, consider which of the four quadrants – planning (market sensing), adaptation (learning orientation), visionary (market power), tranformation (nonpredictive control) – you are in. What to assume about the predictability or controllability of the environment? Does your approach match the situation? Remember that to the extent you can predict the future, you can control it. But to the extent you can control it, you don’t need to predict it.

This article is based on a more extensive treatment of the subject in an article in Strategic Management Journal, 2006, by Read and coauthors Robert Wiltbank, of the Atkinson Graduate School of Management, in Salem, Ore.; Nicholas Dew, of the Naval Postgraduate School, in Monterey, Calif.; and Saras D. Sarasvathy, at the University of Virginia’s Darden Graduate School of Business Administration.

Copyright 2007 IMD – International Institute for Management Development, Lausanne, Switzerland.

(Distributed by The New York Times Syndicate.)

Top^