It would seem reasonable that the starting point should be some shared understanding of what strategy is. I can say with a certain degree of confidence that it is NOT planning, budgeting, objectives, first mover advantage, mission, vision etc. Some of these maybe elements of strategy but they are not strategy. Strategy is the how, it is action, and it is doing.
In probably the two most well known discussions of what strategy is, Michael Porter (What is Strategy, HBR 1996) and Hambrick and Fredrickson (Are You Sure You Have a Strategy, Academy of Management Executive, 2005), the authors lay out somewhat different views of what strategy is.
According to Porter, operational effectiveness and strategy work in different ways. He gives the examples of Japanese firms (such as Toyota) which focused on operational effectiveness during the 70s and 80s. As the gap in operational effectiveness has narrowed, these companies which rarely have a strategy according to Porter, have faltered as they don’t have unique strategic positions. According to Porter, strategy is choosing to perform activities differently than rivals do, he uses the examples of South West Airlines and Ikea to demonstrate the concept of strategic positions. Porters approach to strategy is considered to fit into the positioning school of strategy which is essentially analytical in its approach, focusing on industry structure. It is a top down linear deterministic process that supposes structure follows strategy. Whilst offering a number of useful tools for analysis, many consider this strategy process as overly static and rigid in its approach. Something devised and more suitable for another time. It is also hard to link the analysis that Porter suggests to the actual process of strategy making. It should be noted there are at least 10 schools of strategy according to Henry Mintzberg and colleagues (Strategy Safari, 2005).
Strategy, in the view of Hambrick and Fredrickson, is a centrally, externally oriented concept of how an organization will achieve its objectives. It is not too dissimilar to the view of Porter but diverges in a few important ways. Firstly, it brings in the view of industry as an arena. A much broader view of industry and akin to the concept of what business are we in. Secondly, the authors identify the importance of competences in creating a competitive advantage, and if those competences do not exist, does the organization have a process for constant innovation and opportunity creation. This fits in with the ideas that competitive advantage can no longer be thought of something which is developed and then defended, but rather that all advantages are transient and hence organizations need to be in a constant state of flux and renewal. This is clearly linked to culture and learning and suggests another view of strategy that is more suited to today’s dynamic environments. In her new book (Seeing Around Corners), Professor Rita McGrath makes a strong case for different ways of thinking about strategy and gives this compelling example: ‘Another great saying from Andy Grove’ – “When spring comes, snow melts first at the periphery, because that is where it is most exposed”. According to McGrath, for people running organizations, this has important ramifications – if snow melts from the edges, how do we make sure we see when this is happening?
Hambrick and Fredrickson provide the below framework for defining what a strategy is.
Based on this analysis, the authors breakdown the go to market approach of Ikea which can be summarized as: offering inexpensive, instant fulfillment furniture to young white collar customers in a new shopping experience format. This is primarily achieved through organic expansion and rapid globalization leveraging and creating economies of scale and efficiencies through replication.
This paper was written in 2006 and it is obvious that Ikea has continued to iterate on its strategy. It has focused heavily on technology to lead digital transformation in the company. It has also expanded its arena beyond the original furniture industry to thinking of itself as a lifestyle company targeting an immensely broad spectrum of the market. What is probably most well known about Ikea is their constant stream of innovation. For example, in a Forbes article from 2018, When asked to describe IKEA’s vision for the future at the recent ThinkX event in Stockholm co-sponsored by SAP and Singularity University, Kristin Grimsdottir responds:
“We are not merely a home furnishing company; we focus on Life at Home and how we can make it better for people. For instance, we’re already helping customers generate their own energy with home solar panels and battery storage options and exploring the area of urban organic farming, so you can grow your own food in your kitchen”.
Ikea is an interesting choice of subject for many strategy writers as they use Ikea to provide evidence (often in hindsight) that clear strategy is developed from analysis, leading to a clear position in the market. That may be the case in hindsight, but the actual story of Ikea is one of much more about learning through trial and error. The same can be said of many organizations such as Dell and Honda.
This highlights an incredibly important point. If strategy is the how, how do Ikea and other successful firms continue to innovate/regenerate whilst others, such as Nokia, could not? I believe that how can be summed up in one word – culture. You can devise the ‘best’ strategic position in the world but if it cannot be executed then it is not strategy – it is another meaningless vision statement that adorns the boardrooms of most organizations. Of course, you could also devise the ‘worst’ strategic approach in the eyes of the market (such as Nokia, Kodak, Blockbuster and many others did) and experience the same failure. Culture permeates strategy in numerous ways, from silos to mental models to personal agendas, it is culture that determines the nature of your strategy process plus the outcome of your strategy (intended or emergent).
David J Teece (in his book Dynamic Capabilities) identifies dynamic capabilities as sensing, seizing and managing threats/transforming. He also criticizes concepts such as the Porter’s five forces as being overly static in nature. His ideas highlight the very real need to consider organizational culture in the role of strategy. How can one become ‘capable’ at sensing or transforming if the culture of the organization is insulated, siloed and hierarchical? This is barely considered in the positioning school, if at all.
The discussion so far has made it clear that rather than some top down driven rational process contingent upon a senior leadership team who has all the answers, strategy needs a new view. One that recognizes the often messy and iterative nature of true strategy making and the need to consider culture and mental models as central to either inhibiting or facilitating positive behaviors/outcomes.
It is in fact a knowledge, market and learning orientation that have the most significant impact on firm performance. It may not be ‘strategy’ as most people know it but if strategy is the ‘how’ and the key source of competitive advantage (in the words of Porter), then in fact your culture is your strategy. If not, then at least we can agree with Peter Drucker when he stated that culture eats strategy for breakfast (the quote attributed to Drucker by Mark Fields from Ford Motor Co)!
Culture is often considered some gooey abstract concept that is some magical property which high performing organizations are able to capture and others not. It may be true that some firms have great cultures and others do not but it is hardly an unknowable or untestable concept. The features of a high performing culture have been clearly operationalized and delineated. Some of these are well articulated in the book by Doshi and McGregor, Primed to Perform or in the numerous books/articles by Dave Ulrich. More is available in the literature on innovation and market oriented cultures.
My use of the word of the market (as opposed to marketing) orientation is very deliberate. There is a substantial difference between the trappings of marketing (such as having a person designated as a marketer) and the substance of marketing, which is concerned with the value that is created for the customer. A market orientation can be defined according to the two seminal works in this area by Kohli and Jaworski, and Narver and Slater. These academics have done much to operationalize the implementation of the marketing concept in the form of market orientation.
In the book Reinventing the Organization (2019), Yeung and Ulrich provide some fascinating insight into market oriented eco systems (MOE) built by firms such as Facebook, Tencent, Alibaba, Google etc. A market oriented eco system, in the view of the authors, is an emerging organizational logic that instead of a firm being organized by traditional divisions (command and control), it is organized along team based structures supported by a platform of resources, knowledge, and skills. The approach integrates a number of theories such as holocracy, boundaryless, agile etc. In my opinion, these types of organizational forms are becoming crucial to deal with the complexity of dynamic environments and rely heavily on the ability to leverage market, learning and knowledge cultures. They also help build these cultures because team based forms are critical to realizing the value of capability driven cultures. Hence structure does not just follow strategy but rather structure influences strategy and culture.
In their latest book, Humanocracy, Gary Hamel and Michele Zanini paint a compelling picture of the end of bureaucracy and the need for more humanistic approaches to management. I believe that adhocracy and other self emergent systems are much better suited to the job than typical structures. In fact, toxic ‘strategy’ mechanisms such as yearly budgeting can be eliminated almost entirely by beyond budgeting approaches which involve the concepts of sociocracy which is very similar to the ideas of the MOE proposed by Yeung and Ulrich.
What happens if I rewrite the Ikea strategy based on the Hambrick and Fredrickson version incorporating the ideas of emergent strategy that come from learning, culture, doing and iterating, including the way their strategy has evolved:
Ikea offers a range of lifestyle choices to sustainability conscious consumers anchored by home furniture as the hub of their experiences. We leverage new technologies and eco systems for instant fulfilment and visualization. This is primarily achieved through a market oriented culture that puts team based structures and innovation at the heart of what we do, creating both market driven and market driving solutions. Economies of scale/scope of learning are now more important than traditional metrics of efficiency.
This definition now shifts the concept of strategy away from unique position to something that is more around unique processes. It also identifies that learning is the centre of competitive advantage since advantage is transient. The vision of Ikea has not been changed but the how of achieving this vison has. It suggests that strategy is not something that comes from yearly strategic planning activities but rather it comes from a continual questioning of assumptions about the beliefs of the organization. Firms need to move from a know it all culture to a learn it all culture in the words of Satya Nadella (Microsoft CEO).
Probably the most well known example of this clash between schools of how strategy is made is the case of Honda entering the US motorcycle market in the late 1950s. It was presented as a classic case of strategic analysis using well known concepts such as cost leadership and the experience curve by the Boston Consulting Group (BCG) in a report submitted to the British Government (who had engaged BCG to analyse the demise of the British motorcycle industry). It turned out, after the original team members sent to the USA by Honda were interviewed at depth by Richard Pascale (when he was a Professor at Stanford University), that their success had little to do with a planned strategy (as that had failed miserably) and had much more to do with learning and serendipity (they had originally planned on entering the market with big bikes but ended up accessing the market with the 50cc super cub).
All this suggests that strategy, structure, and execution are not linear but more concurrent in nature. It also suggests that culture impacts strategy to such a significant degree that it MUST be considered as central to the strategy process. If your organization is a top down hierarchical bureaucratic dinosaur then your strategy will be dictated by those pre existing conditions. You don’t need to be a rocket scientist to figure out that the outcome will not be good!
The danger of seeking a unique position in the market based on traditional analytical approaches is well encapsulated in the thoughts of Milan Zeleny. This trade off, he suggests, originates from the ideas of Pareto optimality. He goes on to say: ‘this is not efficiency…but a marginalization of the customer”. The danger of pursuing some competences at the expense of others is those neglected competences atrophy and all advantages are temporary. Competences are bought and reconfigured all the time.
In the HBR classic by Henry Mintzberg (The Rise and Fall of Strategic Planning, 1994), the author describes how typical strategic planning processes have become strategic programming, the articulation and elaboration of strategies that already exist. For him, strategic thinking is about synthesis, which involves creativity and intuition. This comes from messy informal processes of learning that are carried out by people at various levels of the organization. This then comes back to the idea of emergence in strategy creation. In fact, as Arie De Gues (former head of planning at Royal Dutch/Shell) stated in a 1988 HBR article, the real purpose of effective planning is to change the mental models that decision makers carry in their heads. This is perhaps the most vexing challenge in the strategy creation process.
In summary then, this is what strategy is, and is not:
(Source: authors own analysis)
Strategy & Competitiveness 