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Myths, Misconceptions, and Wrongheaded Notions
Ask yourself these questions:
1. In your company, who is responsible for creating the strategy?
2. If we were looking for your business' strategy, where would we find it?
3. Which comes first, the strategy or the tactics?
4. How do people come up with strategies?
When we ask people in business organizations those questions, these are their most frequent responses:
1. "The CEO comes up with the strategy. Well, the top team gives their input, but it's really the CEO." (Usually followed by a statement like: "And the CEO is retiring at the end of this year, so we won't really know what our strategies are for a while. Things are kind of on hold.")
2. "Our strategy? Oh, it's right here in this binder."
3. "First you plan the strategy then you decide on the tactics to carry it out."
4. "Gee, I think the right strategies just kind of come to you, you know, in the shower, or when you're running...you just have a moment of inspiration."
If similar ideas about strategy can be heard around the halls and cubicles of your organization or if you found yourself nodding in agreement as you read the above remarks you're about to be left behind. Why? Because progressive organizations in many industries are developing a new approach to strategy an approach that is likely to give them a competitive advantage in the coming years.
Let's look at the most common misconceptions about strategy and, in the process, explain why the new view of strategy is so critical to your organization's future.
MISCONCEPTION 1: STRATEGY? THAT'S THE CEO'S JOB.
This is probably the most widespread misconception: it's the CEO's job to come up with the strategies. (A variant is the idea that "top management" makes the strategy, with "top" defined as those at least two levels above the person using the term.)
The press doesn't help. Business publications frequently report on company strategies by invoking the name of the CEO and describing the strategies he or she is currently pursuing. The implication is that a lone leader comes up with the company's strategies in isolation, without input from others in the organization. The success or failure of the strategies is also laid at the feet of the leader rarely at those of even the top management team.
Consider these magazine headlines from the past few years:
* "Andy Grove How Intel Makes Spending Pay Off: Intel's CEO bet billions on R&D and new plants"
* "Steve Jobs' Next Big Gamble: The legendary entrepreneur aims to survive by transforming the hardware maker into a major player in software that runs on other companies' computers"
* "Can Larry Beat Bill?: Oracle CEO Larry Ellison's goal: To conquer Microsoft on the I-way"
* "Gault on Fixing Goodyear's Flat: Stan Gault put bounce into Rubber-maid and became a business superstar. Now, as chief executive of his troubled Ohio neighbor, he tells how he'll tackle his greatest challenge yet"
* "Can Lou Gerstner Save IBM?: He may not know computers from crackers, but the new Big Man at Big Blue, Lou Gerstner, knows how to shake up and rebuild corporate cultures" (followed some time later by: Is He Too Cautious to Save IBM?)
While the leader of an organization may bear final responsibility for selecting the overall strategic direction of the enterprise, the leader can hardly be expected to formulate (and can certainly not implement) strategies singlehanded.
What's most intriguing is that our deification of the leader exists side by side with a cry for more participatory organizations, a deemphasis of hierarchy, and a renewed focus on teamwork. While decisions about daily operations and incremental improvements are being pushed further down in the organization, more often than not the creation of strategy is still seen as the province of the CEO. This insistence on anointing the leader as the one solely responsible for determining strategic direction is a curious throwback to the paternalistic mindset so many companies are trying to leave behind.
The depiction of the CEO as lone ranger may be related to the conception of top executives as military generals. As many writers have noted, the concept of business strategy has its roots in military leadership. The word "strategy" is derived from two Greek words: "stratos," meaning an army, and "legein," meaning to lead. While leading an organization and leading an army do have something in common (inspiring "the troops," seeing the big picture, marshaling resources), business is not war.
Although there are useful lessons to be learned from examining military history, thinking of strategy in this way can also be misleading. Employees are not foot soldiers who obey commands. Generals derive their power from an actual or anticipated crisis; for the good of the whole, the army accepts leadership by edict. While many organizations are trying to abandon such command-and-control mentality, perceptions of strategy are still mired in its military roots. We need to lay aside our view of business strategy as something conceived in the mind of the brilliant general and carried out by soldiers, and learn to see it in a way that involves tapping the strategic thinking skills of leaders at all levels of the organization.
(Interestingly enough, military organizations themselves are changing the way they develop strategies, at least according to Compton's Encyclopedia: "Modern warfare has permanently altered the nature of strategy. One general alone no longer plans wars, campaigns or battles...Many planning functions must be delegated. Strategy creation now more resembles the planning sessions of a major corporation.")
For an example of how leaders emerged from relatively low levels of an organization to transform their business's strategy, consider Cincinnati Milacron. In 1985 this maker of plastics injection-molding machines was routinely being beaten by superior foreign imports that had managed to seize over 50 percent of the U.S. market in just under ten years. Harold Faig, a product manager, and Bruce Kozak, a young salesman, were tired of losing sales to Nissei and Toshiba. One Sunday over coffee they began listing the specifications that a machine would need to beat the Japanese. Faig, now a group vice president, describes the strategy that emerged from their discussion:
There was no question about the technology of our machines, the quality and reliability...it was simply a matter of providing a product to the market with lower cost and better features. The strategy that evolved, very simply then, was to completely focus on the Japanese and to go after the market with as much intensity and focus as we could.
Faig approached his boss with their idea for a new machine that could win against the company's foreign competitors: "When I went in with the program, I made it very clear to my boss: 'Look, if you're not in a position to defend this and keep the wolves away, it will never happen.'"
To his surprise, he and Kozak got the go-ahead. He assembled a cross-functional team that developed the dream machine in nine months less than half the usual development time. In their first year of production the new Vista machine sold nearly three times as well as its predecessor. By combining their knowledge of what customers wanted with their drive to influence the company's future, the two front-line strategists came up with a breakthrough product that saved the organization. Cincinnati Milacron is the only surviving major U.S. producer of this type of injection-molding machine. In 1994 Industry Week cited their Batavia, Ohio manufacturing operation as one of the top ten plants in the United States.
Looking back on the project nine years later, Faig describes his philosophy:
I had a personal feeling that it wasn't senior management's responsibility to come up with direction on what we were going to do that belonged down in the bowels of the organization. If we are all doing our job, we're going to them and saying "Hey, here's where we need to go." Then, management's responsibility is to say, "Does that fit into the strategies and direction that we're really looking for?"
Another great example of the new breed of strategist comes from Thermo Electron's San Diego labs. Thermo Electron is an extremely successful company with a wide variety of separate businesses. It makes products for instrumentation, biomedical, and other high-tech applications.
One of the most innovative new products a laser-based hair-removal process is the brainchild of a Russian scientist, a recent emigré employed by the company's ThermoTrex subsidiary. After accidentally zapping himself on the leg with a laser, he noticed that the hair fell out in the spot he had zapped. A specialist in laser technology, the scientist thought, "Maybe I've stumbled across a technology to remove hair."
According to the CEO, George Hatsopoulos, the subsidiary president, Ken Tang, was less than enthusiastic when he heard about the potential new business. "Imagine Thermo Electron, with all our high technology, going into the hair-removal business. It seemed ridiculous." But the scientist was so persistent, and an analysis of the market was so promising, that Ken decided to take a chance and suggest to Thermo Electron's Operating Committee that they consider entering the market. Hatsopoulos described what happened next:
They took a lot of abuse by even bringing the idea up. But the more we thought about it, we found out that this was a one billion dollar market in the U.S. The hair-removal process of electrolysis is very painful, very expensive and not very effective. So we decided to go into that business. Now we have a spinout called Thermolase, which is developing that technology.
Thermolase got FDA approval in 1995. In the first five months of that year, share price climbed 280 percent. "Things like this have happened many times," notes Hatsopoulos. "Most of the ideas for our new businesses did not come from the top of the organization."
In most companies, however, people below the senior level don't see strategy-making as part of their jobs. Think of your own company. How many times have you heard people say, "Well, we don't really know where we're going (and we can't make a decision on this) until they tell us what the strategy is"?
As consultants to a broad spectrum of companies, we frequently see such reluctance to take responsibility for strategy in our management development programs. During these workshops, managers take part in a simulation. They assume the roles of the top twenty executives of a fictitious corporation. After reviewing memos on the industry, the company, and its strategy to date, one brave manager will take the role of CEO, while others become the presidents and vice presidents of the various divisions. They have complete freedom to run the company as they see fit, taking actions and making decisions about the company's future.
Now, these are generally senior managers or high-potential middle managers in large corporations. They are colleagues in real life, often on the same level, with similar backgrounds. Over and over again, we've seen people at the vice president level sit at their desks and wait for the presidents and the CEO to tell them what the strategies are before taking any action or offering any recommendation. In one group, the Management Committee took four hours to come back to the vice presidents with its statement of strategic direction. Meanwhile, those managers, each with more than fifty memos at hand outlining issues and possible strategies for the organization, waited for direction. We'd like to think that this happens only in simulations, but we believe that real life has taught these executives that their role is only to implement strategies, not to make them.
For the sake of argument, let's say that the role of people at lower levels of the organization is to implement, rather than to formulate, strategies. Isn't this still a meaningful contribution to the strategy process? It can be. However, playing a significant role in strategy implementation requires that the implementers actually understand what the company's strategy is. Such understanding turns out to be the exception rather than the rule. A recent study by the Council of Communication Management found that 61 percent of employees surveyed said they aren't well informed about company plans.
The perceived lack of direction from the top can result in lack of coordination, confusion, and wasted time. Seen from another perspective, however, it provides opportunities for leaders at all levels to make strategic decisions without undue interference.
Edward Wrapp, management theorist, puts it this way:
Subordinates who keep pressing for more precise objectives are in truth working against their own best interests. Each time the objectives are stated more specifically, a subordinate's range of possibilities for operating is reduced. The narrower field means less room to roam and to accommodate the flow of ideas coming up from his part of the organization.
The problem, then, is not just that management fails to communicate its strategic intentions to the rest of the organization. The problem is that the rest of the organization has come to think of the CEO and other top managers as the sole strategy-makers. What we need are leaders throughout the organization who are adept strategic thinkers, that is, people who understand the connection between their daily actions and the business's strategy, and who have the drive and skills to get their ideas heard and implemented.
Why is it so important that people throughout the organization see themselves as strategists? The answer is this: Wherever you are in the organization, whether you're a member of a project team, or a manager, or a corporate executive, you are already part of the strategy process. Your actions can propel or derail the success of the current strategies. Your actions can also be the basis for the evolution of entirely new strategies.
Actions developing into strategies? Before we go too much further, let us clarify what we mean by strategy in the first place. We'll do so by examining another misconception.
MISCONCEPTION 2: STRATEGY? IT'S IN THE BINDER.
When we ask people for their definitions of strategy, they often emphasize the planned, deliberate, and programmed process which has come to be associated with strategic planning. "Strategy is a plan of action," or "Strategy is the overall direction of the company as set by the top management," or "Strategy is how you plan to get where you want to go." An executive put it this way: "If you ask people in this organization for our strategy, they'll haul in three big binders."
Many management theorists who debate such things for a living stress this same formal, deliberate nature of strategy:
* "At its simplest, a strategy can be a very specific plan of action directed at a specified result within a specific period of time."
* "[Strategy is] the adoption of courses of action and the allocation of resources necessary for carrying out these goals."
* "In everyday parlance, strategy is a plan for getting things done."
While it would be hard to argue that those definitions are wrong, they only tell half the story of how strategies actually come about. There is a growing awareness among many who study organizations that strategy involves much more than the plan that's put in the binder that's put on the shelf.
Robert Eccles and Nitin Nohria see it this way:
Strategy is not merely something that is devised; it is also something that happens it emerges constantly in a firm as different people respond to and reinterpret their sense of the organization's identity and purpose.
Strategy, then, is like the plot of a novel. If you were writing a novel, how would you develop the plot? Well, you could start with a very detailed outline and know before you wrote the first sentence exactly where you wanted the story to go. Or you could start with only a central image, event or character and let the story emerge as you wrote it. It is most likely that you'd use some combination of the two approaches: Start with some plan and then be flexible enough to modify it as you go. However you arrive at it, your completed novel will have a plot. However it is created, your business has a strategy. And the plan formulated in advance is only part of it.
In other words, strategy does not just involve planning; it also involves doing. And sometimes the doing actually comes before the planning. This view of strategy flies in the face of the linear process we all learned in school: Plan, then act. While this sequence may be logical, in reality we often act and then use the results of our actions to decide on the next step.
For this reason, we prefer the term "strategy-making" to phrases like "strategic planning," or "strategizing," which emphasize the formal process by which strategies are developed but ignore the [act that strategies often evolve through action.
Now, unlike some of those who study management, we're not advocating that you throw the strategic planning baby out with the bath water. Your organization needs the sense of focus and direction provided by a formal plan. But strategies must also be allowed to evolve in response to changes in the environment, and plans need to be modified accordingly. Sometimes the most useful thing about plans is that they remind you what you're deviating from.
Formal strategic plans come from an assessment of current conditions and your predictions of what will happen in the future. Because this evaluation may be based on incomplete information or inadequate analysis, and because the environment is dynamic and unpredictable, recognizing strategies as they evolve can be critical, to your organization's success.
Particularly when you're entering a new or quickly changing market, it is critical to allow strategies to evolve. When IBM's Research Division decided to focus on the still emerging multimedia market, it realized that IBM had to go after this market "niche by niche, not with a grand scheme." Does that mean IBM lacks a strategy for the multimedia market? To the contrary, they are letting the strategy evolve through the discovery of what works and what doesn't.
Vice President Mark Bregman, who is responsible for the Research Division's strategy in the areas of Physical Sciences and Technology, puts it this way:
I don't think it's clear at this point exactly what the multimedia market is. I recently went to a meeting that included people from television, cable, production and telecommunications companies. Everyone who spoke described how they saw the future of the multimedia industry and everyone had a different future, with their company at the center of it. At this point, we don't have a monolithic strategy liar this market and it would be inappropriate if we did.
Why is this difference in how strategy is defined so important to your business? It may not be, if you are in a stable industry, if your markets and customers want the same thing year after year, if your competitors are asleep or nonexistent. Fewer and fewer businesses, however, find themselves in that fortunate position. When the International Consortium for Executive Development Research recently surveyed more than 1,200 executives worldwide, they found that the respondents viewed "being flexible to meet new competitive conditions" as one of the top five organizational capabilities in need of development.
Flexibility is possible only if your strategies are allowed to evolve, as well as being formally planned. In essence, you need to plan for flexibility, to develop ways to encourage evolving strategies to percolate through your organization. People at all levels need to be encouraged not only to carry out strategies but to respond to them, to initiate them, and to adapt them to new circumstances. The "first plan, then act" mindset is deeply ingrained. It's going to take your initiative and leadership to change it.
MISCONCEPTION 3: FIRST YOU PLAN THE STRATEGY, THEN YOU DECIDE ON THE TACTICS TO CARRY IT OUT.
The increased need for flexibility requires another shift in how you view strategy. The very nature of evolutionary strategy-making is to allow today's actions to become tomorrow's strategies. And we're not just talking about the actions of the CEO or management team. In the process of implementation, strategies are continually reshaped, as people in every job respond to customers, sign up new clients, work with suppliers, design new products, and refine existing ones. Teams and individuals who are making decisions and taking action to respond to and anticipate customer needs are, in fact, making important contributions to the actual strategy of your business.
Some might argue decisions of that sort fall under the category of tactics rather than strategy. In the traditional approach to strategic planning, tactics were seen as means for arriving at the end decided on by senior management, and therefore the province of the "detail" people several levels down.
However, in conditions of rapid change, the distinction between strategy and tactics is simply not useful any more. The management expert Henry Mintzberg makes this argument quite clearly:
Decisions made for immediate purposes under short-run pressures whether to handle a crisis or seize an opportunity can have the most long-range and strategic of consequences....Likewise, seemingly momentous "strategic" decisions can sometimes fizzle like a punctured balloon. The trouble with the strategy-tactics distinction is that one can never be sure which is which until all the dust has settled.
Because formulation and implementation of strategy cannot be separated clearly, and because the rapid pace of change requires frequent adaptation of strategies that have been set, today's tactic may become the basis of tomorrow's strategy.
For an example, let's go back to IBM's Research Division. As long as their project goals are met, researchers in the division are free to spend their time on projects of their choice. In 1993 several separate researchers became interested in using information technology to improve education in grades K-12. Unknown to each other, they began working on the initial, unfunded stages of those different projects. Some went out and met with people in the schools to get a clearer picture of their needs.
Once a year researchers submit project descriptions, which outline the work they are doing; those documents are used to motivate allocation of resources to projects during the division's planning process. Upon reviewing the project descriptions, senior management discovered that there were several projects under way in the area of education. That prompted them to develop an R&D strategy for the K-12 education market, a strategy that focused and integrated the work being done in the division.
That strategy would never have emerged had the researchers involved seen their role as the implementation of tactics in support of the division's existing strategies. In this case, the tactics actually preceded and drove the strategy. Do individuals and teams in your organization have the power, the drive, and the skills to identify and create new strategies? Does your organization convert successful tactics into formal strategies? If it doesn't, your company may be overlooking a major opportunity to gain a lasting and resilient competitive advantage.
MISCONCEPTION 4: STRATEGY? IT COMES TO YOU IN THE SHOWER.
How do strategies come about? We tend to think that strategies are born in the minds of individuals, especially individuals at the top of the organization. Even in the rare cases when strategy-making is recognized as occurring at other levels of the organization, it is virtually always attributed to a single, brilliant manager who had a vision and persuaded higher-ups to support it.
In many organizations, however, strategy is increasingly being made by teams rather than individuals. Strategies are created at a round table, on a flip chart, in the field talking with customers, not just in the shower. They are born from the combined experiences and conversations of many minds.
Peter Vaill, a management writer, noted that people with a "knack for strategic planning realize that strategic thinking can no longer be the solitary enterprise of one wise person, that it cannot be done in a closet or on a mountain top, but rather that it is a social, interactive process in which the task is to learn to use the diverse talents and experiences that there are available in the organization."
Why is the creation of strategy shifting from individuals to teams? As proponents of a team culture point out, no individual has as much information, influence, or analytical smarts as a well-functioning group of people does. And, even if he or she did, other people would still be needed to carry out the strategy (thus modifying and shaping it along the way).
The reason why "two heads are better than one" is not just that two people can generate more ideas than one can. Teams of people with diverse styles can overcome the limitations of any single person's style. Your work style is not simply a matter of easily learnable skills but is, in fact, a deeply rooted preference linked to your basic character or personality. Though you can to some extent change your behavior consciously, your preferred style comes most naturally. Style determines not only where you are inclined to focus but also what you typically fail to attend to. It acts as a kind of screen, limiting the input you receive and how you make sense of it.
You also choose to attend to and screen out information based on your role in the organization. In order to cope with the range of issues and mass of data in the organization, you have to filter out the less critical input. A marketing manager is most likely to pay attention to feedback that is most useful for marketing efforts; an R&D scientist will probably focus on different kinds of issues and information.
A vice president at Northern Telecom describes why his corporation decided to bring together people from each business unit and function in what they call their Global Leadership Forum. That effort has two overall goals: to develop each leader's skills and to solve real business problems. "We wanted to bring the widest diversity of ideas to each team so we could stimulate breakthrough thinking. If we are working on a manufacturing problem and we just use manufacturing people, the solution won't be nearly as good as it could be," he says.
A team of individuals, all with different styles, job responsibilities, backgrounds and experiences, can pay attention to a wider range of information, feedback, and input from customers and markets. For this reason, teams, rather than individuals, are becoming the primary unit responsible for the development and implementation of strategy.
The late 1980s and early 1990s have seen a headlong rush toward team-based organizations. As we write this, several best-selling business books focus on how to get teams to function effectively. In the desire to understand how teams work and what makes them successful, people too often jump to a discussion of the team process: how people work together, how they communicate, how to hold teams accountable, how to reward and encourage teamwork. What is left out is the context: why teams are being encouraged.
Teams should be used because they offer a better way to implement a particular strategy. A cross-functional team reengineering a business process should be doing so in pursuit of a specific strategy perhaps creating efficiencies in order to maintain market share, perhaps streamlining in order to remain competitive in an all-out market war with a key competitor. And in the implementation of those strategies, teams of people are making strategy as well.
The very nature of teamwork encourages the evolution of strategy. As people work together, bouncing ideas off each other, they tend to refine and develop them as they converse. In the course of their work, they may discover customer needs that have previously gone unnoticed. AS they take action to address those needs, and as those actions meet with success, strategies quietly but surely emerge strategies that are grounded in the realities of customer expectations and conditions in the market environment.
Since they are likely to be key players in the strategy process, team members need to be well versed in the formal strategies your business is pursuing. For example, if you are a member of a marketing team coming up with a new promotional effort, and you understand that you need to support a market penetration strategy, you will choose quite different tactics from those required if the strategy were to maintain market share. Members of a product development team need to understand the ins and outs of the current competitive climate before they can make useful decisions about what features will really give the new product an advantage.
And the strategies themselves must be flexible enough to change if the team uncovers new information about shifts in the marketplace. Team members need to see themselves as front-line strategists, rather than foot soldiers expected to play a preordained role in pursuit of inflexible goals handed down from the top of the organization. In fact, the more people in your company, regardless of their level, who see themselves as strategists, the more likely you are to have a strong, resilient organization that is in tune with its environment.
Strategy is a dynamic process incorporating much more than the deliberate, linear sequence that has come to be associated with strategic planning. Our model (see next page) depicts how strategies are actually created and what the specific elements are of the dynamic process we call strategy-making. It reconciles two of the key debates, or false dichotomies, that have been swirling around the subject of strategy over the last twenty years: Are strategies formulated via a deliberate, formal process, or do they emerge unplanned? (Both are true.) And does strategy entail finding a fit between your current capabilities and the marketplace, or does it involve anticipating as yet unseen trends and thus transforming the company and even the industry? (It entails both.)
This process has no distinct beginning, middle, or end. Leaders who are managing strategy can begin at any of the four points depicted in the figure. The sequence of events is less critical than being sure to recognize and manage all four aspects of strategy-making.
For the sake of this description, we'll start at the top of the circle: Deliberate strategies are developed based on detailed analyses of the industry environment and the business's competitive position within it. This is the formal process known as "strategic planning," which involves focusing the organization on key strategies and on allocating resources according to the plan.
Even the most carefully formulated plans, however, change and evolve as they are tested for their strategic fit with customers and markets. After all, a strategic plan is really based on a business's best predictions of the future. These predictions are tested and revised based on feedback from customers and new information about developments in the market environment. Competitors' moves also affect the viability of the formal plans.
Out of this testing process, new strategies evolve based on the acquired knowledge of a new kind of strategist, the front-line employee. As employees interact with customers and invent new ways of responding to customers' needs, they develop new strategic approaches that can then evolve into more formal strategies.
When strategic leaders capitalize on the wealth of information and knowledge that is accumulated by front-line strategists, they develop strategic foresight the ability to discover unanticipated market trends and as yet unarticulated customer needs. Businesses with strategic foresight avoid the trap of developing strategies that are merely reactive, and are able to discover possibilities that may ultimately transform their companies and their industries.
Based on the strategic fit of the strategies that are currently being tested, new strategies that are evolving, and new possibilities that are being uncovered, deliberate strategies are revised and new strategies are formulated.
In the next chapter, we'll explain more about why strategy is everyone's business and discuss some of the benefits to getting your entire organization involved in the strategy-making process.
Copyright © 1995 by Stephen J. Wall and Shannon Rye Wall