Competing on the Edge (Brown, Eisenhardt, 1998)

Competing on the Edge (Brown, Eisenhardt, 1998)

Strategy as Structured Chaos

Shona L. Brown, Kathleen M. Eisenhardt

"Three core concepts describe an organization that can change continuously: the edge of chaos, the edge of time, and time pacing."

"The intuition behind the edge of chaos is that change occurs when strategies and their related organizations are sufficiently rigid so that change can be organized to happen but not so rigid that it cannot occur."

"The key assertion of this book is that successful firms in fiercely competitive and unpredictably shifting industries pursue a competing on the edge strategy. The goal of this strategy is not efficiency or optimality in the usual sense. Rather, the goal is flexibility - that is, adaptation to current change and evolution over time, resilience in the face of setbacks, and the ability to locate the constantly changing sources of advantage. Ultimately, it means engaging in continual reinvention."

JLJ - Brown and Eisenhardt present a system for business that involves operating on the "edge of chaos" - the point, they declare, where systems can most effectively change. Shona L. Brown is (or at least was circa 1998) a consultant with McKinsey & Company, so this advice is paid for with top dollar.

Perhaps this concept also applies to game theory and team sports, where the future is unknown and yet plans of some kind must be developed to 'go on'.

Brown and Eisenhardt present their system, a novel way to operate a business that must thrive in a changing environment. We ought not plan ourselves into oblivion, like Sears with its 29,000 page manual of operating procedures. Yet we should not operate like a chaotic movie studio creating on-set chaos by planning - then canceling - expensive location shots.

The obnoxious let's-flat-out-bow-and-worship-the-currently-successful business-school-style case studies glorifying Nike and Microsoft and Intel and Apple and other business models of success make the reader yawn and sigh, then thumb forward in the book, looking for something not already said elsewhere. In my opinion, these companies found open niches in a market, then aggressively maintained their positions against competitors via insightful re- and re-reorganization of business objectives and products as the market changed out underneath them, often creating and sustaining demand for products where none had been present before, then timely introducing new products before being caught flat-footed by "fresher" competitor knock-offs. Notable in all dated business books are the "successes", here circa 1998, that are nowhere to be seen in 2016.

In business school, you get case-studied to death, where the "instructors" read articles from the business Journals, frequently contribute to them, and "package" the techniques of the successful businesses into teachable forms and concepts that are "cases" for students to become familiar with. There is no "theory" for running a business, because what works today might not work tomorrow.

Why write a book like this? Well, as an executive you have the choice of developing your own strategy or hiring a consultant to help you, or to read a book like this one and use the methods proposed. Students and executives must stay current with best practices, or find themselves unprepared for future work situations that call for their use.

Curious and brilliant is the underappreciated idea of "trolling constantly" - applied by the authors to the behavior of the Atlanta Braves General Manager in pursuit of talent for his baseball team, but most usefully applied in game theory of all kinds, where the landscape is constantly changing and exploratory behaviors (of specific kinds) are needed to support maintaining adaptive positions on the playing field.

The packaged wisdom in this book is available for all to read - few, perhaps, will ever do so.

In critique, the leading edge of change is not where everyone has to be, or even wants to be.

p.3 Given the pervasiveness of change, the key strategic challenge is managing that change. The dilemma is how to do it.

p.4 Competing on the edge defines strategy as the creation of a relentless flow of competitive advantages that, taken together, form a semicoherent strategic direction. The key driver of superior performance is the ability to change. Success is measured by the ability to survive, to change, and ultimately to reinvent the firm constantly over time... its five key building blocks: improvisation, coadaptation, regeneration, experimentation, and time pacing... competing on the edge meets the strategic challenge of change by constantly reshaping competitive advantage even as the marketplace unpredictably and rapidly shifts. The goal is reinvention through a relentless flow of competitive advantages.

p.7 The strategic challenge in high-velocity, unpredictable industries is... to manage change by reacting when necessary, anticipating wherever possible, and leading change when the circumstances are right. Given this strategic challenge, an approach of competing on the edge makes sense.

p.7 competing on the edge assumes that industries are rapidly and unpredictably changing and, therefore, that the central strategic challenge is managing change.

p.7-9 The underlying insight behind competing on the edge is that strategy is the result of a firm's organizing to change constantly and letting a semicoherent strategic direction emerge from that organization... A semicoherent strategic direction is fundamentally different from what is traditionally called strategy. It is...

Unpredictable. Competing on the edge is about surprise. It is not about planning an approach and knowing how it will unfold. The future is too uncertain... It is more about making some moves, observing what happens, and continuing with the ones that seem to work...
Uncontrolled. It is not about command and precision planning... There is simply too much going on in rapidly changing industries for any single group to orchestrate every move...
Inefficient. Competing on the edge is not necessarily efficient in the short term. It is about stumbling into the wrong markets, making mistakes, bouncing back, and falling into the right ones... it is about using change to relentlessly reinvent the business...
Proactive. Competing on the edge... is about being early - about trying to anticipate and, where possible, to lead change.
Continuous. It is about a rhythm of moves over time; not a set of disjointed actions...
Diverse... competing on the edge... is about making a lot of moves. Some will be brilliant, most will be good, and a few will be failures.

p.11 Three core concepts describe an organization that can change continuously: the edge of chaos, the edge of time, and time pacing.

p.11 The edge of chaos has been described as "a natural state between order and chaos, a grand compromise between structure and surprise." In more concrete terms, being at the edge of chaos means being only partially structured.

p.11-12 The intuition behind the edge of chaos is that change occurs when strategies and their related organizations are sufficiently rigid so that change can be organized to happen but not so rigid that it cannot occur. On the one hand, too much chaos makes it difficult to coordinate change. There is no coherence... On the other hand, too much structure makes it hard for a firm to move. Strategies become brittle and prone to unexpected collapse... In contrast to these two extremes, the edge of chaos lies in an intermediate zone where organizations never quite settle into a stable equilibrium but never quite fall apart, either. This intermediate zone is where systems of all types... are at their most vibrant, surprising, and flexible.

p.13 The edge of time captures the complicated yet adaptive behavior that emerges at an intermediate zone where managers look backward to the past and forward into the future while concentrating on today.

p.15 Generally speaking, time pacing is about creating an internal rhythm that drives the momentum for change.

p.18 Complex Adaptive Systems

These systems are made up of multiple interacting agents... These systems exhibit complex behavior - behavior that is "orderly enough to ensure stability, yet full of flexibility and surprise." The behavior is adaptive because it adjusts to changes in the environment. Finally, the behavior is emergent because it arises from the system and can only be partly predicted.

Although the behavior that emerges is complex, the rules that guide it are necessarily simple. In fact, it is their simplicity that creates the freedom to behave in complicated, adaptive, and surprising ways.

p.19 The key assertion of this book is that successful firms in fiercely competitive and unpredictably shifting industries pursue a competing on the edge strategy. The goal of this strategy is not efficiency or optimality in the usual sense. Rather, the goal is flexibility - that is, adaptation to current change and evolution over time, resilience in the face of setbacks, and the ability to locate the constantly changing sources of advantage. Ultimately, it means engaging in continual reinvention.

p.24 Although a competing on the edge strategy is predictably unpredictable, uncontrolled, and at times inefficient, it is also effective in industries that experience relentless change. Competing on the edge, at a minimum, is about reacting responsibly to change, anticipating change when possible, and at best, creating and even dictating the pace of change that others are forced to follow. Competing on the edge is about constant change... in unrelenting, day-after-day adjustment to a constantly shifting landscape.

p.28 The edge of chaos is a key concept in complexity theory that describes where systems can most effectively change. Systems with more structure than found at the edge of chaos are too rigid to move. Systems with less structure are too disorganized. Yet, the edge of chaos is not simply a bland balance of "not too hot and not too cold." Rather it is where ...

Complicated behaviors... occur...
A few rules... exist that are not arbitrary and not compromises between extreme values...
Work is required to maintain balance on the edge of chaos because it is a dissipative equilibrium...
Surprise exists...
Mistakes occur...

p.28 the central dilemma of current business is how to achieve adaptive innovation and consistent execution. The resolution of this dilemma is through an edge-of-chaos process, improvisation. Improvisation involves balancing the structure that is vital to meet budgets and schedules with flexibility that ensures the creation of innovative products and services that meet the needs of changing markets.

p.29 improvisation balances on the so-called edge of chaos. The underlying argument is that when systems of any kind... are poised on the edge of chaos between too much structure and too little structure, they "self-organize" to produce complex adaptive behavior.

p.33 Many traps lie in wait on the way to successful improvisation.

p.45 Although many managers fall into either the chaos or bureaucratic traps, others manage to avoid these pitfalls. They improvise... they rely on a small amount of structure coupled with intense, real-time communication. These simple structures and extensive communication allow people to engage in much more complicated and adaptive behaviors than is possible with either more or less structure... limited structure combines with intense interaction creates enough flexibility for behavior to be fresh, surprising, and adaptive, and provides just enough structure for a business to deliver products and services on target and on time... time after time.

p.48 A striking characteristic of Cruising is that everyone expects to change. [JLJ - "Cruising" is a pseudonym created by the authors to protect the true name of an actual company, likely one that they did consulting for]

p.53 Cruising's approach to strategy is to improvise.

p.56 You have to keep testing the edge to ensure that you are still on it.

p.60 like all the edge-of-chaos processes, coadaptation is a dissipative equilibrium and so requires constant managerial attention to stay poised on the edge.

p.60 As in any edge-of-chaos process, coadaptation is most effective when poised on the edge of chaos between too much and too little structure.

p.93 The solution to the dilemma of exploiting the old while creating something new is an edge of time process, regeneration.

p.102 Natural selection can fail when too little variation exists.

p.111 managers who have taken a more successful approach to the past regenerate their business by wisely exploiting (with genetic algorithms) the best of the past (selection), adding something new (mutation), and mixing their blend of old and new with the not-quite-new (recombination). As a result, these managers often effectively evolve their businesses into new market opportunities and simultaneously extend the longevity (and profitability) of exiting lines of business by blending insights from the new business back into their older ones.

p.114 speeding the blend... To do this managers depend on tactics that accelerate the evolution of their businesses by adding in the not quite new. One such tactic is rearchitecture. Much like the way auto mechanics rebuild car transmissions, rearchitecture involves refurbishing some of the past. The result is not a new "engine," but it is not really an old one, either. It is something in between. A second speeding tactic is recombination. Recombination refers to mixing or synthesizing different pieces of the past in fresh ways to create something that is almost new... but not quite.

A final trait is modularity. Mangers who effectively leverage the past keep pieces of their businesses... distinct from one another. This creates the flexibility to change pieces of the mix at different rates. It also enables managers to use the speeding tactics of rearchitecture and recombination.

p.122 ensure that something you are doing has the potential to surprise you... you should get started on thinking about how you can modularize what you are doing. Remember that modularity is the stepping stone to rearchitecture and recombination and so it has to come first.

p.129 a viable strategy for the future is essential for effective competition... Why is strategy for the future so challenging? On the one hand, the inherent uncertainty of the future means that planning is not an effective approach. It is difficult to know what will happen and even more difficult to forecast when. So flexibility is vital. On the other hand, intense competition and fast-paced change make reacting a poor strategy. Reacting means always playing catch-up, always competing in the future that others have defined. Thus, placing bets on the future is critical. The dilemma is how to make a commitment to a future and provide flexibility for the future.

p.131 The key to resolving the dilemma of making a commitment to a future and providing flexibility for the future is another edge of time process, experimentation... experimentation relies on small, fast, and cheap probes to create a more complex and dynamic strategy for the future than either planning or reacting provides. Experimentation attempts to gain insight into the future that may unfold without losing flexibility to react to the future that does unfold.

p.134 Like NASA, Merck managers manage the unknown through small, fast, and cheap probes. Merck managers have become masters of scenario planning... Equally striking is Merck's reliance on a variety of thrusts into the future... Finally, options are key to managing the future at Merck... Options do two things at Merck. They transform basic research into the small, fast, and cheap model that has become the style at NASA. They also transform the corporate perspective to one not of planning the future or reacting to it but rather of gaining insight about the future in a variety of ways. Options redefine success and failure. In the options mindset, a project may fail therapeutically or commercially but still be a success if it adds to the stock of insight about the future within the firm. [JLJ - I disagree, you cannot "manage" the unknown. You can instead manage your own behavior when confronting the unknown.]

p.134-135 The... examples suggest that successful strategy for the future centers on experimentation through a wide variety of low-cost probes that are designed to reveal the unexpected... Merck's experience highlights the importance of variety, varying time lengths, and options. Taken together, these examples reveal how experimentation - the edge between reacting today and planning tomorrow - can help managers to gain insight into the future without committing to a future.

p.140 The major problem with planning is that plans are virtually always wrong.

p.147 The most effective managers... navigate the edge between today's reacting and tomorrow's planning by experimenting... they engage in a wide variety of simple, low-cost probes that provide insight about the future while maintaining strategic flexibility. The result is quicker reaction to market shifts, better anticipation of the future, and more opportunities for reinvention and growth.

p.148 Sun managers have also funded a stable of experimental activities. The best recent example is Java, an object -oriented programming language that enables applications to run over the Internet, [JLJ - a surprising success today in 2016, but security issues requiring almost constant patching threaten to make it unusable]

p.148-149 We identified several common traits among businesses that experiment effectively. One is that their managers have a simple and clearly defined vision of the business of the future. They do not try to predict any particular future of the industry, but rather try to define their business' identity within whatever future comes... Second, these managers rely on a wide variety of low-cost probes of the future... they use their probes to incrementally shape strategic direction.

Third, these managers give constant, but thin, attention to the future... they constantly engage in forward-looking activities

p.150 Titan managers routinely create experimental products to probe new markets... The primary purpose of the experimental products is to provide insight into the future.

p.151 Implementing experimentation requires an understanding of the logic of probes because probing is at the heart of experimentation. Probes... are valuable because they are an effective way to learn about the future.

p.151 The cheaper and smaller the probes, the more probes can be afforded. [JLJ - yes, but in a complex situations, "cheaper and smaller" probes might be useless. Imagine a rabbit eyeing carrots in a trap. Its eyes and nose (probes) tell it that there is food inside a funny structure that is not familiar and does not make sense. In certain complex situations, richly detailed, complex probes might be a necessity.]

p.151 Probes are also valuable because they can be used to create options for the future. [JLJ - "probes" create results that need to be interpreted within a framework. They do not reveal the unexpected without an interpretation, and may only indicate "possible" results and that further probing needs to be done. Consider the 1 January 1962 Beatles audition at Decca records. The record company listened to a 15-song "probe" into the capabilities of the Beatles, who were rejected in favor of another group, perhaps only because the group chosen was local to the London area and would therefore have lower travel expenses.]

p.151 the best probes reveal the unexpected, the unanticipated, and the previously unknown.

p.155 The direct impact of Titan's experimentation with the future was better anticipation into how the future was likely to unfold. In particular, the strategy of many small, low-cost probes was an especially effective way to develop insight

p.156 Rules for Picking Probes

Develop many types of low-cost probes. Vary the time frames of probes...
Be sure to choose some probes that have a chance of failure...
Pick some probes that require implementation followed by a measurement of results...
Use more probes when your marketplace is particularly volatile.
If you must use big probes, whenever possible break them into a series of smaller options, or opportunities to learn.
Place more probes into the most likely future.
Pick some random probes...
Build on the results of your probes to shape the next strategic moves.
Do not probe endlessly in a particular area...
[JLJ - my addition, if your probe is not working, consider using medium- and higher-cost probes]

p.157 The heart of experimentation is probing.

p.159 What could Pulsar's managers have done differently? ...Pulsar managers should have complemented their strategic planning by actually engaging the future through experimentation and building strategy based on insights from these experiments.

p.167 Time pacing means creating new products, introducing new services, launching new businesses, and entering new markets according to the calendar... Time pacing is an effective strategy because it forces managers to look up from their businesses on a regular basis, survey the situation, adapt if necessary, and then get back to work.... Time pacing involves two management concepts... One is transitions. Time pacing relies on choreographed transitions... The second is rhythm. Time pacing relies on a rhythm that can actually be executed, is synchronized with the marketplace, and thwarts the competition. Rhythm creates the momentum of time pacing.

p.180 businesses can get into a rhythm. Performing activities like launching products or entering new markets at predictable intervals and with choreographed procedures creates rhythm. When the pattern of change in an organization is rhythmic, people adjust to the beat by pacing their activities and adjusting the intensity of their efforts.

p.193 Living things... adapt and evolve with shifting competition and varying climate. Change is what living things do. In contrast, machines run. They mostly don't change, or if they do, it is because they have been built, like neural nets, to mimic living things. Machines are built by assembling component pieces. Living things develop and evolve over time.

p.220 sustaining consistent performance requires keeping up with change. Consistent performance is a dynamic equilibrium, in the sense that the equilibrium point is constantly shifting.

p.223 John Schuerholz was the general manager of the Braves... His job was to troll constantly through the baseball world to get and keep the best players, at every position, for the Atlanta Braves. [JLJ - I like the concept of "troll constantly" for game theory, when constructing the diagnostic test of adaptive capacity to mobilize coercion. Rather than "searching" we are "trolling" for the surprising consequences when examining scenarios of best play.]

p.224-225 Schuerholz... relentlessly patched and repatched the Braves to ensure that the Braves had the best team possible given the constantly changing pool of available baseball talent... Creating this constantly shifting roster of players was Schuerholz's job - the job that the rapid and unpredictable change of free agent baseball made critical.

p.239-240 At the business and functional levels...

The job is strategy. The bottom line is winning.
Create strategy by improvising, coadapting, experimenting, and regenerating. Next time pace.
Constantly test to ensure that you are still on the edge. Test the edges by adding or taking away some structure. Be vigilant for cues that you are slipping in one direction or another.
If the market speeds up, consider creating patches within your business.
Develop juggling skills to deal with competing tensions.

p.243 Our book has argued that competing on the edge is the unpredictable, often uncontrolled, and even inefficient strategy that nonetheless defines best practice when change is pervasive.

p.243-247 What are the "laws" of competing on the edge? ...

Rule 1: Advantage is Temporary... Managers who compete on the edge understand that competitive advantage is fleeting, and so they focus on continuously generating new sources of advantage. This casts change as an opportunity, not a threat...

Rule 2: Strategy is Diverse, Emergent, and Complicated... Managers who compete on the edge let strategy emerge... managers make a variety of moves, observe what happens, and follow through with the ones that are successful...

Rule 3: Reinvention is the Goal... best practice managers recognize that profitable fortresses are rare, and that reinvention is the smarter path toward long-term profitability.

Rule 4: Live in the Present... These managers use just enough structure to... keep businesses poised for change...

Rule 5: Stretch Out the Past...

Rule 6: Reach into the Future... Managers... Driven by a belief that the future is unpredictable, they launch more experimental products and services

Rule 7: Time Pace Change...

Rule 8: Grow the Strategy...

Rule 9: Drive Strategy from the Business Level...

Rule 10: Repatch Businesses to Markets and Articulate the Whole...

p.247 The ten rules of competing on the edge make sense in rapidly changing and uncertain industries... they result in a semicoherent direction that is somewhat unpredictable, uncontrolled, maybe even inefficient, but also one that is robust and effective. Competing on the edge... is... an approach to strategy that works... when the name of the game is change.