The Strategy Paradox (Raynor, 2007)

Book Description
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.

p.90 The ability to forecast accurately is central to effective planning strategies. If the forecasts turn out to be wrong, the real costs and opportunity costs... can be considerable. On the other hand, if they are correct they can provide a great deal of benefit - if the competitors have not followed similar planning strategies [Makridakis, as quoted in Mintzberg, 1994]

p.91 build the best possible assumption base about the future... Industry foresight gives a company the potential to get to the future first and stake out a leadership position... The trick is to see the future before it arrives [Hamel and Prahalad, as quoted in Sheriden, 1998]

p.91 [Winston Churchill quoted] All prognosticators are bloody fools.

p.190 Strategic flexibility is very different from the run-of-the-mill flexibility or adaptability. "Flexibility" means "change within existing constraints." Flexibility can be helpful, but strategic uncertainty demands strategic flexibility - the ability to change strategies

p.192 Anticipate: The existence of strategic risk is a function of the unpredictability of the future. Consequently, managing strategic risk cannot hinge on improved prediction. However, it is possible to bound the range of possible futures that one might face. This is best done with scenarios. By creating a number of scenarios that define the "possibility space" over a relevant time horizon, one can create a framework for discussing the future without having to stake future success on guessing right.

Formulate: With scenarios in place, it is possible to determine the strategies required to be successful under these different conditions. In other words, there is an optimal strategy for each scenario. Each optimal strategy can then be decomposed into its constituent elements - the technologies, capabilities, or other assets required to implement that strategy. Elements that are common to many of the optimal strategies are known as core elements, while those that are common to only a few optimal strategies or perhaps unique to one optimal strategy are called contingent elements.

Accumulate: Core elements can be pursued without reservation, for there is no strategic risk associated with them; commitment is entirely appropriate, because there is very little chance of having "guessed wrong." It is the contingent elements that demand more creativity and require real options thinking.

Combining scenarios with optimal strategies places boundaries on the range of assets and capabilities an organization might need in order to be successful across a range of plausible futures. Accepting the unpredictability of the future does not imply a complete inability to place limits on what could conceivably happen.

Even with these limits in place, committing to all the resources required by every optimal strategy is generally not feasible. By investing in the contingent elements in an optionlike manner, a corporation can cover a far greater range of assets far more cost-effectively.

Operate: The accumulate phase results in a portfolio of options covering the contingent elements related to specific optimal strategies described in the formulate phase. These optimal strategies are in turn linked to the scenarios developed in the anticipate phase. The operate phase demands a close monitoring of the environment, which allows the corporation to determine:

which of its scenarios most accurately captures the most important elements of the future that "arrives," which determines...
which optimal strategy is most appropriate, which determines...
which contingent elements are required, which determines...
which options should be exercised and which should be abandoned.

Finally, since time's arrow has no tip, the set of circumstances used as the foundation for building a flexible strategy must be constantly reviewed and occasionally refreshed or renewed."

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