Strategy starts with identifying changes

Pay attention to this , professor of strategy at UCLA’s Anderson School of Management:

The Quarterly: Last year the Quarterly’s survey on strategic planning found an enormous amount of dissatisfaction among executives. Many of them feel that they are wasting a lot of time on strategic planning. What advice would you give them?

Richard Rumelt: Most corporate strategic plans have little to do with strategy. They are simply three-year or five-year rolling resource budgets and some sort of market share projection. Calling this strategic planning creates false expectations that the exercise will somehow produce a coherent strategy.

Look, plans are essential management tools. Take, for example, a rapidly growing retail chain, which needs a plan to guide property acquisition, construction, training, et cetera. This plan coordinates the deployment of resources—but it’s not strategy. These resource budgets simply cannot deliver what senior managers want: a pathway to substantially higher performance.

There are only two ways to get that. One, you can invent your way to success. Unfortunately, you can’t count on that. The second path is to exploit some change in your environment—in technology, consumer tastes, laws, resource prices, or competitive behavior—and ride that change with quickness and skill. This second path is how most successful companies make it. Changes, however, don’t come along in nice annual packages, so the need for strategy work is episodic, not necessarily annual.

Now, lots of people think the solution to the strategic-planning problem is to inject more strategy into the annual process. But I disagree. I think the annual rolling resource budget should be separate from strategy work. So my basic recommendation is to do two things: avoid the label “strategic plan”—call those budgets “long-term resource plans”—and start a separate, nonannual, opportunity-driven process for strategy work.

The Quarterly: So strategy starts with identifying changes?

Richard Rumelt: Right.

Traditional Strategic planning is dead. The purpose of crafting strategy is not to create a detailed plan for where the company is headed 5-10 years into the future: in today’s fast moving environment, it is impossible to predict that far into the future. The objective of strategy work should be focused around learning by shaping strategy moment by moment, day by day as companies learn from their customers and their competitive environment.

What’s needed is real-time vision, where the strategy cycle starts when someone sees something that others haven’t noticed and quickly translates that insight into action. See how Prof. Rumelt describes what Steve Jobs does:

The Quarterly: So how does a company take a good position?

Richard Rumelt: Well, one big factor is a predatory posture focused on going after changes.

in 1998 I had the chance to talk with Steve Jobs after he’d come back and turned Apple around. I was there to help Telecom Italia try to do a deal with Apple, but after that business was completed I couldn’t help asking a question. “Steve,” I said, “this turnaround at Apple has been impressive. But everything we know about the personal-computer business says that Apple will always have a small niche position. The network externalities are just too strong to upset the de facto “Wintel”3 standard. So what are you trying to do? What’s the longer-term strategy?”

He didn’t agree or disagree with my assessment of the market. He just smiled and said, “I am going to wait for the next big thing.”

Jobs didn’t give me a doorknob-polishing answer. He didn’t say, “We’re cutting costs and we’re making alliances.” He was waiting until the right moment for that predatory leap, which for him was Pixar and then, in an even bigger way, the iPod. That very predatory approach of leaping through the window of opportunity and staying focused on those big wins—not on maintenance activities—is what distinguishes a real entrepreneurial strategy.

This sounds a lot like OODA (Observe, Orient, Decide, Act) as the faster you can learn and accumulate new knowledge from your customers and your environment, make sense of that new knowledge, extract insights and then put them into action you’ll be better positioned to outpace competitors.

I left a great portion of the interview out as I just wanted to draw attention to the fact that when we think about strategy, learning as fast as the world is changing is more important than trying to predict it. I encourage you to , it’s from 2007 but very much relevant.

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  • Try planning all the transitions across all technology adoption lifecycle phases. You know the transitions will happen, but you do not know when. They maybe slowed down or accelerated by booms and busts, or recessions. Certain issues need to be addressed in each transition, so your strategic plans would address those needs.

    The work in early adopter phase requires different capabilities than your later work in the vertical market, but your early work can mitigate against problems in the Chasm. The same goes for every transition in the technology adoption lifecycle. A move into a recessions looks just like the transition from early mainstream to late mainstream. There will be additional considerations like the duration until subsequent sales, but certain strategic enablers will keep revenues coming in until the recovery.

    None of this has to do with budgets, except for paying to get those enablers in place. Even there, particularly in a startup, you might not be the party paying for them. Some of those enablers look like client work.

  • The key question posed by Moore’s technology adoption lifecycle is not what, but when. The lifecycle can be very informative as to what will happen, and in what sequence things will happen. The distribution can tell you when, but you would have to have a reliable market sizing and sales funnel. Most companies move across the lifecycle oblivious to their current position in it. 

    • Interesting that Moore’s framework always comes up. I’m not going to argue against it but is there another way to look at this? Or is this the dominant framework for thinking about lifecycles?

      • Moore’s framework is the only one that I’ve seen for the lifecycles of discontinuous technologies supplemented subsequently with continuous innovations. Other frameworks can be incorporated in specific phases of Moore’s frameworks. Further, there are plenty of works by other authors that validated Moore’s framework. Try “How Hits Happen.” And, there are other dimensions. If you’ve only read one of Moore’s books, try reading them all.

        I have extended Christensen’s s-curves from “Seeing What’s Next,” to incorporate lexical positioning.

        Beyond Moore, I have several other frameworks of my own.

        I return to Moore often, because too many people do not know where they are in the framework, what works where, what is too early, what is too late, and how the market does not grow, but is consumed by each sale with the typical growth moves just speeding up that consumption.

        •  Interesting. And do you have your frameworks on your blog? Looks like I have some reading to do…