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A compelling vision. Bold leadership. Decisive action. Unfortunately, these prerequisites of success are almost always the ingredients of failure, too. In fact, most managers seeking to maximize their chances for glory are often unwittingly setting themselves up for ruin. The sad truth is that most companies have left their futures almost entirely to chance, and don’t even realize it. The reason? Managers feel they must make choices with far-reaching consequences today, but must base those choices on assumptions about a future they cannot predict. It is this collision between commitment and uncertainty that creates THE STRATEGY PARADOX.
This paradox sets up a ubiquitous but little-understood tradeoff. Because managers feel they must base their strategies on assumptions about an unknown future, the more ambitious of them hope their guesses will be right – or that they can somehow adapt to the turbulence that will arise. In fact, only a small number of lucky daredevils prosper, while many more unfortunate, but no less capable managers find themselves at the helms of sinking ships. Realizing this, even if only intuitively, most managers shy away from the bold commitments that success seems to demand, choosing instead timid, unremarkable strategies, sacrificing any chance at greatness for a better chance at mere survival.
Michael E. Raynor, coauthor of the bestselling The Innovator's Solution, explains how leaders can break this tradeoff and achieve results historically reserved for the fortunate few even as they reduce the risks they must accept in the pursuit of success. In the cutthroat world of competitive strategy, this is as close as you can come to getting something for nothing.
Drawing on leading-edge scholarship and extensive original research, Raynor’s revolutionary principle of Requisite Uncertainty yields a clutch of critical, counter-intuitive findings. Among them:
-- The Board should not evaluate the CEO based on the company’s performance, but instead on the firm’s strategic risk profile
-- The CEO should not�drive results, but�manage uncertainty
-- Business unit leaders should not focus on execution, but on making strategic choices
-- Line managers should not�worry about strategic risk, but devote themselves to delivering on commitments
With detailed case studies of success and failure at Sony, Microsoft, Vivendi Universal, Johnson & Johnson, AT&T and other major companies in industries from financial services to energy, Raynor presents a concrete framework for strategic action that allows companies to seize today’s opportunities while simultaneously preparing for tomorrow’s promise.
- Sales Rank: #94500 in Books
- Published on: 2007-02-20
- Released on: 2007-02-20
- Original language: English
- Number of items: 1
- Dimensions: 9.55" h x .90" w x 6.30" l, 1.25 pounds
- Binding: Hardcover
- 320 pages
Review
One of BusinessWeek Magazine's top ten business books of 2007
Voted one of the five best strategy books of 2007 by Strategy and Business magazine
Advance praise for THE STRATEGY PARADOX
"One of the most important, realistic and useful books on strategy ever written. With consummate clarity and withering logic, Raynor confronts and resolves the paradox that while strategy requires commitment, much about the future is simply unknowable. It is an absolutely brilliant, lucidly written piece of scholarship."
--Clayton M. Christensen, Professor, Harvard Business School and author of the bestselling The Innovator's Dilemma and The Innovator's Solution
"Raynor has taken the next giant leap forward in strategy.� He demonstrates that much of what we know about creating value is true, but woefully incomplete.� By widening our focus from simply the pursuit of success to include ever-present uncertainty, Raynor does more than simply alert us to the long-ignored risk/return tradeoff -- he shows us how to break it."
--Jim Balsillie, co-CEO, Research in Motion (RIM)
"The best lesson in corporate strategy I have ever read. Everyone admits we do not know what the future holds, but most of us go on acting as though we do know what the future holds. That can be dangerous in the extreme. Raynor has it right: clearly and convincingly, he shows us why facing up to uncertainty is essential for sustainable success, and then he provides the tools and methods to achieve it."
--Peter L. Bernstein, author of Against the Gods: The Remarkable Story of Risk
"The Strategy Paradox is a most extraordinary business book: impeccably researched and argued, brutally honest and devoid of 'silver bullet' solutions to today's complex strategy problems. It has profound implications for business strategy research , teaching and practice and should be read by anyone interested in why some strategies succeed while other equally-thoughtful strategies fail."
-- Hugh Courtney, Distinguished Tyser Teaching Fellow, University of Maryland, and author of 20/20 Foresight : Crafting Strategy in an Uncertain World
"A rare and extremely valuable gem…. Raynor provides managers a sophisticated, accessible, and highly usable approach weaving time, choice, uncertainty, and risk into a rich treasury of insights"
--Andy Boynton, Dean, The Wallace E. Carroll School of Management, Boston College
"Very few executives or board members look forward to the annual corporate clairvoyant ritual known as strategic planning; in no small part because of the unspoken recognition that "our" crystal ball's vision of the future has no greater fidelity than the competition's glass sphere. Since luck has rarely proved to be a sustainable business model, there exists a desperate need for a system to implement that can manage the unmanageable: how do you commit resources now to service customers and markets that will emerge in a distant and inherently unpredictable future?
Just as Raynor succeeded in unlocking the mysteries behind innovation in The Innovator's Solution, The Strategy Paradox provides an intelligent, robust, practical compass that the non-telepathic can use to navigate through the inevitable course corrections that will be required along the journey to success. Drawing upon extensive data from business, probability, mathematical and behavioral sciences and graphically illustrating his thesis with real-world examples of both successes AND failures, Raynor beautifully explains how to create a portfolio of strategic options that will allow curative interventions as unforeseen circumstances and developments are inescapably encountered…. Raynor's approach to strategic planning is not only the best manual on the subject written to date, it is an essential survival tool."
-- William Hunter MD, Founder, President & CEO, Angiotech Pharmaceuticals
"A very timely book that penetrates to the core of strategy, namely how to balance commitment and flexibility in a world of increasing uncertainty. Michael Raynor is a gifted writer and thinker about business, bringing fresh examples and lucid insights to deeply challenging issues facing today's executives. … This book deserves to be read widely by managers and leaders alike."
--Paul J. H. Schoemaker, Adjunct Professor, Wharton Business School and Chairman of Decision Strategies International Inc., Author, Profiting from Uncertainty and Peripheral Vision
"Insightful, timely and relevant to the choices and commitments our company is contemplating. The external environment in which we will find ourselves in a few short years is very uncertain, where changes in regulations, the economy, competitors’ behavior, customer preferences, or new or disruptive technologies could each, or in combination, dramatically change the operating landscape. The ability to take bold action with urgency, while maintaining strategic flexibility, has never been more important."
--Dan Hesse, Chairman and CEO, Embarq Corporation
"Raynor's book is insightful in identifying the very real constraints to sustained business growth. Strategy Paradox offers an architectural plan to effect transformational growth in a risk averse climate. These concepts have been extremely helpful to me as I work to create options for promising future technologies while simultaneously managing inescapable strategic risk."
-- Dave Holveck, Vice President, Corporate Development, President, Johnson & Johnson Development Corporation
"If Stephen Jay Gould had written a business book, this would be it; Raynor provides the most logical, detailed, and enlightening explanation for why some products succeeded and some products failed. . . Read this book to learn how to deal with uncertainty before you suffer the same fate as dinosaurs."
--Guy Kawasaki, Managing Director, Garage Technology Ventures and author, The Art of the Start
About the Author
Michael E. Raynor, of Deloitte Consulting LLP, is a Distinguished Fellow with Deloitte Research in Boston and works extensively with clients worldwide. He is the coauthor, with Clayton M. Christensen, of the best-selling The Innovator’s Solution. Raynor has a doctorate from the Harvard Business School, and is an Adjunct Professor at the Richard Ivey School of Business in London, Canada. He lives in Mississauga, Canada.
Excerpt. � Reprinted by permission. All rights reserved.
Chapter One
WHAT STRATEGY PARADOX?
Most strategies are built on specific beliefs about the future. Unfortunately, the future is deeply unpredictable. Worse, the requirements of breakthrough success demand implementing strategy in ways that make it impossible to adapt should the future not turn out as expected. The result is the Strategy Paradox: strategies with the greatest possibility of success also have the greatest possibility of failure. Resolving this paradox requires a new way of thinking about strategy and uncertainty.
Here is a puzzling fact: the best–performing firms often have more in common with humiliated bankrupts than with companies that have managed merely to survive. In fact, the very traits we have come to identify as determinants of high achievement are also the ingredients of total collapse. And so it turns out that, behaviorally at least, the opposite of success is not failure, but mediocrity.
There is more at stake here than simply observing that accomplishing anything worthwhile requires at least making the attempt, while those who venture nothing can only ever avoid disappointment. Theodore Roosevelt, the twenty–sixth president of the United States, explained this much to us when he argued that the credit belongs to those actually “in the arena,” whose faces are marred by “dust and sweat and blood.”(1) His point was that victory demands valiant action, and that valiant action necessarily brings with it the risk of defeat.
In business, the kinship between these antipodes runs far deeper, to the nature of the actions one must take in order to prevail. Therein lies the strategy paradox: the same behaviors and characteristics that maximize a firm’s probability of notable success also maximize its probability of total failure.
THE SIMILARITY OF OPPOSITES
Many opposites are not nearly as different as they first appear. For example, as Nobel Peace Prize winner Elie Wiesel observed, the opposite of love is not hate, but indifference; for at a minimum, to love or hate someone is to have intense emotions toward them.(2) We see how the similarities between love and hate often outweigh the differences when one is transformed into the other, a phenomenon that literature—from Gilgamesh to Shakespeare to Harlequin Romances—has exploited and explored for millennia.
The psychological proximity of love and hate is part of the hard–wiring of the human psyche. Dan Gilbert explains, in his book Stumbling on Happiness, that the same neurocircuitry and neurochemistry triggered in response to stressful events (“flight or fight”) are also triggered in response to sexual arousal.(3) As a result, when we are stressed in the presence of a person we find sexually attractive, we have a tough time telling what we are responding to: are our passions inflamed (hate) because of a stressor, or are we aroused (love) because of the attractive person?
In the 1994 movie Speed starring Keanu Reeves and Sandra Bullock, Bullock’s character, Annie Porter, appeals to this possible confusion when she notes, upon finding herself in the hero’s arms after several near–death experiences, that “relationships that start under intense circumstances, they never last .”
Call it an “emotional paradox”: two very different dispositions—loving and hating—can have far more in common with each other than a seemingly intermediate state.
The strategy paradox is visible only when we can put under the microscope strategies whose only flaw was that they flopped. Chapter 2 explores two such strategies: Sony’s Betamax VCR and its MiniDisc music player. In both cases, the company never set a foot wrong by the lights of how one is supposed to build a successful strategy: it understood its customers, identified viable market segments, developed cutting–edge products, executed flawlessly, and monitored and responded to its competitors’ countermoves. Yet, in both cases, Sony came up short because the commitments the company had to make in the pursuit of greatness were undermined when the perfectly reasonable assumptions behind those commitments turned out to be wrong. Sony’s failures were not a consequence of bad strategy, but of great strategy coupled with bad luck. Sony did everything necessary to maximize its chances of success, yet those same actions exposed it to the possibility of near–total defeat. In other words, when key uncertainties broke against it, Sony became a victim of the strategy paradox.
The purpose of this book is to describe how the strategy paradox can be resolved. In what follows, a new principle I call Requisite Uncertainty and a new management tool I call Strategic Flexibility provide a way for managers to implement the kinds of strategies that can deliver outstanding results while minimizing exposure to the vagaries of fate.
1.1 HIDDEN IN PLAIN SIGHT
Why is this the first you have heard of the strategy paradox? After all, there is no shortage of well–designed and well–executed studies offering useful insights into the defining characteristics of successful firms. Similarities to failed firms and the importance of luck have not featured prominently.
The reason most business research misses the strategy paradox is that few studies ever examine failure. In some cases, this is because pursuing the secrets of success seems more rewarding than picking through the wreckage of failure. In other cases, it is simply a flawed method: researchers embrace the idea that by studying winners they can discern their defining characteristics, forgetting that the factors differentiating winners from losers can be identified only by analyzing both. Finally, there is the reality that failures are often harder to document because failed companies are typically no longer available for study.
In light of these difficulties, researchers often compromise, comparing companies that have been very successful over ten or fifteen years (focal companies) with companies that have been less successful over that same time period (comparison companies). Some studies look for firms that have done very poorly over that time, and others look for comparison companies that have actually done pretty well—just not nearly as well as their focal companies. Either way, however, comparison companies have at least survived for the period in question, and over a ten–year period, mere survival is actually a pretty high bar.(4)
What this means is that most studies of the determinants of success have based their conclusions upon comparisons of the exceptional with the mediocre. Studies that systematically seek out successful companies will necessarily find those that in the past made the right commitments. And because the comparison companies are always firms that have performed less well, but not failed completely, they will tend to be firms that have avoided high–risk, high–return strategies. A review of more than thirty empirical studies, published in academic journals over the past twenty years, exploring the relationship between strategy and performance found none that had accounted for this bias.(5)
By examining primarily those companies that have guessed right and comparing them with those that have avoided guessing, what has been largely missed is the critical importance of managing uncertainty. The gallant charge and the cowardly retreat are not the only alternatives to catastrophic defeat. There is a way to boldly go, yet mitigate risk without compromising performance. Describing that solution is the promise of this book.
Accepting the strategy paradox forces us to accept mediocrity, giving up a chance at greatness as the price of our continued corporate existence. Resolving it will free us from a debilitating trade–off between risk and return and allow us to strive to be first without giving up the hope that we will last.
1.2 MUST COMMIT
The cause of the strategy paradox is as obvious as it is overlooked. A successful strategy allows an organization to create and capture value. To create value, a firm must connect with customers. For a firm to capture value, its strategy must be resistant to imitation by competitors. Satisfying customers in ways competitors cannot copy requires significant commitment to a particular strategy, that is, strategic commitments, to unique assets or
to particular capabilities.
Commitments are a powerful determinant of success because they make a strategy difficult to imitate. To reduce strategic risk, many firms invest only in what has been shown to work. Since these latecomers wait while some firms—the lucky ones—make what happen to be the right commitments, lucky firms enjoy a period of relatively little competition: it takes time to replicate capabilities so painstakingly created. For example, new products snapped together from off–the–shelf components are usually easily imitated by competitors, while those based on proprietary technologies developed over years are far likelier to be the foundation of a durable franchise. The downside of commitment is that if you make what happen to be the wrong commitments, it can take a long time to undo them and make new ones.
The strategy paradox, then, arises from the collision of commitment and uncertainty. The most successful strategies are those based on commitments made today that are best aligned with tomorrow’s circumstances. But no one knows what those circumstances will be, because the future is unpredictable. Should one have guessed wrong and committed to the wrong capabilities, it will be impossible to adapt—after all, a commitment that can be changed was not much of a commitment. As a result, success is very often a result of having made what turned out to be the right commitments (good luck), while failed strategies, which can be similar in many ways to successful ones, are based on what turned out to be the wrong commitments (bad luck). In other words, the strategy paradox is a consequence of the need to commit to a strategy despite the deep uncertainty surrounding which strategy to commit to. Call this strategic uncertainty.
New research detailed in Chapter 3 suggests that often the main factor separating success and failure is indeed luck. Firms that avoid strategic risk survive but do not prosper. Firms that accept strategic risk reap either great reward or utter ruin. For now, these seem to be the only alternatives to failure, and firms are forced to choose. There is no intrinsic merit in opting for greater returns over survival or vice versa; the problem is that firms must choose.
The Sony examples, referred to earlier, are not unique. The strategy paradox is more than a theoretical possibility or a curiosity; it is a general condition. As recounted in Chapter 3, an analysis of the competitive strategies of several thousand operating companies reveals that organizations pursuing the most commitment–intensive strategies generate the highest returns, but they also suffer the highest mortality rates. Seen in this light, Sony’s failures were not a consequence of avoidable mistakes but the result of making commitments—the defining element of successful strategy—despite inescapable uncertainty. And when those uncertainties were resolved to Sony’s detriment, it paid the price.
The strategy paradox rests on two premises: commitments cannot be adapted should predictions prove incorrect; and predictions are never reliably or verifiably correct. Are these premises true?
1.3 CAN’T ADAPT
For all we might think we know about how to make organizations agile, flexible, and adaptive, the data suggest strongly that, if anything, competitive advantage is eroding faster than ever. This acceleration is interpreted by some to mean that there is a greater need than ever for adaptable enterprises. Such an observation is entirely correct. Unfortunately, the acuteness of the need does not mean that it can be satisfied.
Most organizations exhibit some degree of adaptability. However, as explained in Chapter 4, adaptability is far less useful than we might like. Specifically, adaptability is viable only when the pace of organizational change matches the pace of environmental change. When the environment changes either faster or slower than the organization, adaptability is no longer sufficient. The bad news is that every organization will at some point face one or both of two types of mismatch between the two rates of change, and each can prove devastating.
Fast change leaves an organization’s capabilities optimized for an environment that suddenly no longer exists. For example, when the price of oil rose 400 percent in a matter of weeks in the early 1970s, North American automakers found that the mainstay of their product lines—full–sized cars—were singularly inappropriate to the new competitive conditions. Unfortunately, it took those same automakers years to design, manufacture, and market more fuel–efficient models, and they lost valuable market share to better–positioned competitors. (Ironically, the tide turned in their favor in the mid-1990s when cheap gas made SUVs all the rage; their good fortune began to evaporate once again in the face of high-priced petrol in the mid-2000s.)
Slow change prompts an organization to adapt to incremental changes in the environment around it, and because of these incremental adaptations, the company often fails to see the need for a more fundamental transformation. The auto sector’s response to the current oil crisis may be subject to this slow change pathology. As oil prices have crept up, automakers have responded by extending the life of the internal combustion engine by dramatically increasing fuel economy and creating hybrid electric engines, among other technological advances. But the day may well come when, due either to the need to limit carbon emissions for environmental reasons or the inability of the general economy to absorb still further increases in oil prices, the internal combustion engine must be abandoned. Should that day arrive, companies that have been exploiting their adaptive capacity could well be overtaken by firms that are already aggressively pursuing alternative technologies intended to replace, rather than merely extend, a centuryold technology.
Compounding the difficulties of responding to fast and slow change is the fact that most competitive environments are characterized by multiple rates of change, creating the impossible organizational task of changing at different rates at the same time.
As a result, adaptability cannot expect to resolve or even mitigate the strategy paradox.
Most helpful customer reviews
159 of 163 people found the following review helpful.
Strategy Gets New Life
By E. Rae
As a strategy consultant, I'm always on the look out for the next book to either recommend to my clients, or that they are likely to gravitate towards, to be prepared with my opinion when asked about the work. And since I have been a fan of Clay Christensen and disruption theory and was looking forward to see what Raynor would do on his own. Thanks goodness for a relaxing the long weekend so I could finally make the time for this.
Also, I have never written a review before. Since I really liked the book and there seemed to be few comments yet doing it justice, I figured I would cut my teeth on this one.
Generally, I have to agree with the HBR review -- he's a disruptive thinker in his own right: this is an approach to corporate strategy that is new, combining the merits of commitment-based strategy with the inescapable need for flexibility. I am looking forward to practically applying the core concepts on behalf of my clients.
The Strategy Paradox: Hidden in Plain Sight
Raynor begins by demonstrating what many of us have long suspected but weren't able to come out and say: when it comes to traditional strategic planning, the emperor has no clothes. Established frameworks -- from Ansoff to Porter to Hamel to, for that matter, Christensen, are premised on an ability to decide today what will be successful tomorrow. We're told again and again that the future will yield its secrets if only we're smart enough and our analysis is rigorous enough.
But prediction is a dark art at best: the data are always ambiguous. Personally, I've never seen a single path forward as clearly the best choice. This means that unfortunately, the most successful strategies are necessarily based on big commitments: it is fine to want to be "agile" and commit only once the data are clear, but the company that guesses right in the face of ambiguity will always outperform the "wait and see" approach of the adapative enterprise.
And so you have to commit big if you want to win big, but when you commit big you create the risk of losing big. That's the Strategy Paradox: the same strategic positions that hold out the promise of extreme success create the possibility of extreme failure.
Raynor demonstrates this both anecdotally and with a truly extraordinary large-scale data set. Anecdotally, in Chapter 2 Raynor has a totally new take on Sony's Betamax and MiniDisc fiascos. The tendency is to look at strategic failures such as these and conclude that the perpetrators were just plain dumb. What Raynor shows is that the strategic choices made, at the time they were made, were perfectly reasonable. Better still, Raynor shows that the opposite choices -- the ones made by Matsuhshita (VHS) and Apple (iPod) respectively were also perfectly reasonable. And that's the point: the future is uncertain, but you have to commit if you want to win big. A "take-it-as-it-comes" approach might have avoided catastrophe, but at the cost of having any real hope of real success. The ultimate winners are determined by the outcomes of unpredictable future events -- in other words, luck.
Raynor then shows that this is not just a one-shot thing. In Chapter 3, drawing on fascinating survey data, he shows that companies with clear cost leadership or product differentiation strategic positions deliver higher average returns than firms that are "stuck in the middle". In other words, big commitments made extreme success much likelier. Now the bad news: those same "extreme" strategic positions have much higher frequency of bankruptcy. Raynor has identified true "strategic" uncertainty -- the risk attached the pursuit of a specific strategy. And it turns out that the better returns that come with commitment-based strategies come at the cost of a higher risk of failure. Raynor's Strategy Paradox is not just a theoretical proposition -- it is a general, empirical fact. I'm left to conclude that, as Raynor says, everything we know about strategy is true, but it's "dangerously incomplete". (I love the drama he infuses into my strategy discussions with clients and colleagues!)
So, there's a risk/return trade-off in strategy. Is this news? I think so: there is no strategy book before now that qualifies its advice on achieving greatness with the caveat that you're also increasing your chance of total failure. In fact, much of strategic thinking is based on the idea that higher returns are correlated with lower variance in returns, and so risk and return are inversely correlated. But these findings are polluted with survivor bias, something Raynor's data correct for, perhaps for the first time. By identifying and empirically substantiating the risk/return tradeoff in strategic planning, Raynor has made a material contribution to the field.
I was convinced that better prediction isn't the answer; if you're not, Raynor spends Chapter 5 talking about why we'll never be able to predict the future with the necessary accuracy, drawing heavily (and respectfully) on the work of N. N. Taleb and Stephen Wolfram in particular.
I was more sceptical of Raynor's claims that the "organizational adaptation" school didn't hold a useful answer, either, but I was largely won over, if only because, as Raynor points out, the adaptation school hasn't done a very good job of defining its own boundaries. In Chapter 4 Raynor begins to sketch out, for the first time, as far as I can tell, what those limits might be, and through this makes it clear that a better answer is needed.
Growth Options vs. Strategic Options
The commentary the book has received on this site doesn't seem to me to describe accurately the true nature of "Strategic Flexibility." Some have described it simply a "portfolio of alternatives" or a way to "invest small in uncertain ventures." This misses the point. Raynor is describing a way for different product groups or divisions in a company to make their own high-intensity commitments yet collectively face lower strategic uncertainty.
For example, in Chapter 7, MSFT in 1988, draws on Beinhocker (Origin of Wealth) but extends it. MSFT's portfolio was more than just different forays into the OS space: each division created capabilities that could be recombined to create a more effective OS strategy than was being explored by any given division. So, for instance, the company was exploring enterprise markets with Unix, consumer markets with Windows, and commercial markets with OS/2. This was not merely covering different bets; it was covering only those bets that could both survive on their own -- and so have growth option value -- and, depending on how the world turned out, be recombined to create a new strategy in the OS market -- and so have strategic option value.
This distinction, between growth options and strategic options, is a significant contribution to the real options field. Raynor's Chapter 7 discussion of BCE (a Canadian telecoms company), brought the difference into focus for me. Growth options are essentially attempts to "run away" from your core business. So, if you're Enron and you think pipelines are boring and in decline, you get into energy trading as a way to pull yourself up by your bootstraps get out of that business. Trading is simply a "growth option" -- an option on entirely new growth trajectories.
Strategic options, on the other hand, are new businesses that are created in order to potentially reinvent and extend your existing core business. BCE got into systems consulting, e-commerce, and media, but not to escape its core telecoms operations; rather, BCE diversified in order to keep open the possibility of reinvigorating the core. At the corporate level, BCE didn't commit to these new initiatives, taking partial equity stakes in a number of different companies that it could dial up or down as circumstances warranted. But at the operating division level, those firms were entirely committed to achieving their own success.
As different market conditions or technologies evolved, BCE would be able to "exercise" its "strategic options" and completely change the strategy of the core telecoms unit but -- and this is the brilliant part -- without ever having had the core telecoms unit attempt to change itself. What Raynor also convinced me of is that strategic options are not an attempt to capture synergies. Strategic options aren't businesses that ARE related, they're businesses that might BECOME related. Strategic options create capabilities the core operations might need, often by forcing the corporate parent to invest in industries it doesn't understand. BCE had a portfolio of high-commitment strategies, but because each created strategic options -- not just a growth option -- for the others, the company as a whole had created a lower strategic risk profile.
Uncertainty and Strategic Flexibility
In the end, BCE wasn't able to follow through on its strategy, largely because, according to Raynor, the strategy was largely intuitive, and was not guided by a clear set of frameworks. That's something Raynor sets out to remedy, developing two powerful concepts largely through a case study of Johnson & Johnson that occupies all of chapter 8.
The first part of the solution is Requisite Uncertainty, described first in chapter 6, which is a powerful synthesis of Elliott Jacques's work on hierarchy with Raynor's insight into strategic uncertainty. He provides a powerful distinction between competitive strategy and corporate strategy: competitive strategy lives in the operating units, and is about generating returns; corporate strategy is about managing uncertainty by creating a portfolio of the necessary strategic and growth options.
The reason I found this is so powerful is because it takes seriously the organizational implications of trying to manage strategic uncertainty. Most explorations of the topic do a great job motivating the need to manage uncertainty and providing tool kits and frameworks for doing it, and Raynor is careful to give them all their due. But what's been missing, and what this book adds, is an organizational framework that divides up the responsibilities for making and delivering on commitments from the need to create strategic options that can mitigate the uncertainty created by those commitments.
The result is a liberating framework. It makes it possible for operating managers to make the commitments required if greatness is to be even possible. That is, they are free to pursue powerful competitive strategies because corporate strategy identifies and mitigates those risks.
Then Raynor takes up the challenge of "operationalizing" these concepts in the Strategic Flexibility framework. He synthesizes scenario-based planning with real options, making it tangible and actionable. In addition the J&J example, he works through applications at Alliant Energy, AT&T, and CIBC, a Canadian bank.
Closing thoughts
If you've read this far, you might conclude I haven't a bad word to say about The Strategy Paradox. And I don't, sort of: the contributions strike me as so profound and potentially powerful that pointing out the book's shortfalls strikes me as petty. Nevertheless, in the interests of being "fair and balanced," let me point out some items I wish had been death with more directly and fully.
First, there is a question of measurement. How do we actually know the strategic risk profile at BCE or J&J was lower? This is a big issue, which Raynor engages, and concludes that in the end, we can't measure it in as hard-nosed a way as we might like. The full explanation is somewhat laborious, but I think it boils down to this: risk is about the future, and there are no data about the future. The past is only a useful proxy when we have reason to think the future will look like the past. Since strategy on this level is not a repeated game -- how many times will we see the risk of the Internet? -- we simply have to make educated guesses. I would have liked more detail on how to think through the valuation question more carefully.
Also, applications to smaller companies (some of my clients) are missing. The examples are all big, diversified companies. I don't think that undermines the "generalizability" of the lessons learned. But implementing Strategic Flexibility does seem to require a certain minimum level of resources, one that is likely beyond the reach of, say, start-ups. Where is the "lower limit" of the application of these principles? I'm okay with it if they don't apply everywhere -- Raynor's not obligated to come up with a theory of everything -- but it would help to know what to look for so I could know precisely when and where to get out this particular toolkit.
But these are nits. The endorsements for this book from the likes of Christensen and Bernstein seem perfectly justified: one of the most important books on strategy ever written, and the best lesson on corporate strategy, in particular, I have read. I think this book should take the corporate strategy conversation in a whole new direction.
0 of 0 people found the following review helpful.
Excellent Strategic Flexibility concept
By Amazon Customer
Excellent conceptual guidelines for strategic thinking in the VUCA context (Volatility, Uncertainty, Complexity, Ambiguity), with a focus on Strategic Uncertainty, in a bold attempt to solve the strategic paradox between the possible great success and the remarkable failure of any outstanding strategy. The core concept of the book is that of the Strategic Flexibility, based on what Raynor defines as Requisite Uncertainty, recommending a breakdown of the management hierarchy's focus on a variable strategic horizon, longer for the top management and shorter for the lower hierarchical layers. A must read.
24 of 25 people found the following review helpful.
A significant intellectual contribution
By Ariel
A significant intellectual contribution and a welcome addition to the serious management literature.
The author basically argues that most studies of "great organizations" are incomplete because they compare companies that are spectacularly successful against those that are simply "mediocre." Drawing management practices solely from "great" companies in studies like these, he says, is fundamentally flawed, because they omit the most revealing comparison set, namely, those companies that have failed. His surprising finding is that when you compare the spectacular successes with the spectacular failures, they actually look pretty much the same: they both tend to have very clear strategies and consistent, focused execution against those strategies. The difference being that the failures simply picked the wrong strategy.
The "Strategy Paradox" is that the strategic bets you need to make to pursue "spectacular success" (high commitment of plant, capital, technology, etc.) simultaneously increase your odds for "spectacular failure." The rest of his book presents a mind-set and tool-set leaders can use to mitigate the risk inherent with high-return strategies, increasing their odds of success.
The job of the CEO is central to his approach. Basically, the CEO plays a "different in kind" strategic role. Instead of making strategic "commitments" (this role falls to operating unit leaders) and "executing" against them (this role falls to functional leaders), the CEO should be in the business of creating strategic "options," so that as the future changes, operating units have alternatives.
Because of the extreme uncertainty about how the future will turn out in the long term, the CEO's ability to create "real options" against various scenarios of how the future will turn out becomes critical to long-term organizational success. The CEO does this through intelligent investment (partial equity stakes in emerging technologies, etc.) and other mechanisms that create options that divisional leaders can "exercise" or "abandon" as the future unfolds.
I recommend this book highly and consider it one of the few true "paradigm shifting" books out there--meaning, one that can permanently affect your leadership mindset for the better!
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