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The Strategy Paradox: Why committing to success leads to failure (and what to do about it) (Hardcover)
by Michael E. Raynor
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Strategy, Strategic thinking, Management |
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Author: Michael E. Raynor
Publisher: Currency; 1 edition
Pub. in: February, 2007
ISBN: 0385516223
Pages: 320
Measurements: 9.2 x 6.1 x 1.1 inches
Origin of product: USA
Order code: BA01239
Other information: ISBN-13: 978-0385516228
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- MSL Picks -
A significant intellectual contribution and a welcome addition to the serious management literature.
The author basically argues that most studies of "great organizations" are incomplete because they compare companies that are spectacularly successful against those that are simply "mediocre." Drawing management practices solely from "great" companies in studies like these, he says, is fundamentally flawed, because they omit the most revealing comparison set, namely, those companies that have failed. His surprising finding is that when you compare the spectacular successes with the spectacular failures, they actually look pretty much the same: they both tend to have very clear strategies and consistent, focused execution against those strategies. The difference being that the failures simply picked the wrong strategy.
The "Strategy Paradox" is that the strategic bets you need to make to pursue "spectacular success" (high commitment of plant, capital, technology, etc.) simultaneously increase your odds for "spectacular failure." The rest of his book presents a mind-set and tool-set leaders can use to mitigate the risk inherent with high-return strategies, increasing their odds of success.
The job of the CEO is central to his approach. Basically, the CEO plays a "different in kind" strategic role. Instead of making strategic "commitments" (this role falls to operating unit leaders) and "executing" against them (this role falls to functional leaders), the CEO should be in the business of creating strategic "options," so that as the future changes, operating units have alternatives.
Because of the extreme uncertainty about how the future will turn out in the long term, the CEO's ability to create "real options" against various scenarios of how the future will turn out becomes critical to long-term organizational success. The CEO does this through intelligent investment (partial equity stakes in emerging technologies, etc.) and other mechanisms that create options that divisional leaders can "exercise" or "abandon" as the future unfolds.
I recommend this book highly and consider it one of the few true "paradigm shifting" books out there-meaning, one that can permanently affect your leadership mindset for the better!
(From quoting Ariel, USA)
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Michael E. Raynor, of Deloitte Consulting LLP, is a Distinguished Fellow with Deloitte Research in Boston and works extensively with clients worldwide. He is the coauthor, with Clayton M. Christensen, of the best-selling The Innovator’s Solution. Raynor has a doctorate from the Harvard Business School, and is an Adjunct Professor at the Richard Ivey School of Business in London, Canada. He lives in Mississauga, Canada.
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From Publisher
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.
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Chapter One
WHAT STRATEGY PARADOX?
Most strategies are built on specific beliefs about the future. Unfortunately, the future is deeply unpredictable. Worse, the requirements of breakthrough success demand implementing strategy in ways that make it impossible to adapt should the future not turn out as expected. The result is the Strategy Paradox: strategies with the greatest possibility of success also have the greatest possibility of failure. Resolving this paradox requires a new way of thinking about strategy and uncertainty.
Here is a puzzling fact: the best–performing firms often have more in common with humiliated bankrupts than with companies that have managed merely to survive. In fact, the very traits we have come to identify as determinants of high achievement are also the ingredients of total collapse. And so it turns out that, behaviorally at least, the opposite of success is not failure, but mediocrity.
There is more at stake here than simply observing that accomplishing anything worthwhile requires at least making the attempt, while those who venture nothing can only ever avoid disappointment. Theodore Roosevelt, the twenty–sixth president of the United States, explained this much to us when he argued that the credit belongs to those actually “in the arena,” whose faces are marred by “dust and sweat and blood.”(1) His point was that victory demands valiant action, and that valiant action necessarily brings with it the risk of defeat.
In business, the kinship between these antipodes runs far deeper, to the nature of the actions one must take in order to prevail. Therein lies the strategy paradox: the same behaviors and characteristics that maximize a firm’s probability of notable success also maximize its probability of total failure.
THE SIMILARITY OF OPPOSITES
Many opposites are not nearly as different as they first appear. For example, as Nobel Peace Prize winner Elie Wiesel observed, the opposite of love is not hate, but indifference; for at a minimum, to love or hate someone is to have intense emotions toward them.(2) We see how the similarities between love and hate often outweigh the differences when one is transformed into the other, a phenomenon that literature-from Gilgamesh to Shakespeare to Harlequin Romances-has exploited and explored for millennia.
The psychological proximity of love and hate is part of the hard–wiring of the human psyche. Dan Gilbert explains, in his book Stumbling on Happiness, that the same neurocircuitry and neurochemistry triggered in response to stressful events (“flight or fight”) are also triggered in response to sexual arousal.(3) As a result, when we are stressed in the presence of a person we find sexually attractive, we have a tough time telling what we are responding to: are our passions inflamed (hate) because of a stressor, or are we aroused (love) because of the attractive person?
In the 1994 movie Speed starring Keanu Reeves and Sandra Bullock, Bullock’s character, Annie Porter, appeals to this possible confusion when she notes, upon finding herself in the hero’s arms after several near–death experiences, that “relationships that start under intense circumstances, they never last .”
Call it an “emotional paradox”: two very different dispositions-loving and hating-can have far more in common with each other than a seemingly intermediate state.
The strategy paradox is visible only when we can put under the microscope strategies whose only flaw was that they flopped. Chapter 2 explores two such strategies: Sony’s Betamax VCR and its MiniDisc music player. In both cases, the company never set a foot wrong by the lights of how one is supposed to build a successful strategy: it understood its customers, identified viable market segments, developed cutting–edge products, executed flawlessly, and monitored and responded to its competitors’ countermoves. Yet, in both cases, Sony came up short because the commitments the company had to make in the pursuit of greatness were undermined when the perfectly reasonable assumptions behind those commitments turned out to be wrong. Sony’s failures were not a consequence of bad strategy, but of great strategy coupled with bad luck. Sony did everything necessary to maximize its chances of success, yet those same actions exposed it to the possibility of near–total defeat. In other words, when key uncertainties broke against it, Sony became a victim of the strategy paradox.
The purpose of this book is to describe how the strategy paradox can be resolved. In what follows, a new principle I call Requisite Uncertainty and a new management tool I call Strategic Flexibility provide a way for managers to implement the kinds of strategies that can deliver outstanding results while minimizing exposure to the vagaries of fate.
1.1 HIDDEN IN PLAIN SIGHT
Why is this the first you have heard of the strategy paradox? After all, there is no shortage of well-designed and well–executed studies offering useful insights into the defining characteristics of successful firms. Similarities to failed firms and the importance of luck have not featured prominently.
The reason most business research misses the strategy paradox is that few studies ever examine failure. In some cases, this is because pursuing the secrets of success seems more rewarding than picking through the wreckage of failure. In other cases, it is simply a flawed method: researchers embrace the idea that by studying winners they can discern their defining characteristics, forgetting that the factors differentiating winners from losers can be identified only by analyzing both. Finally, there is the reality that failures are often harder to document because failed companies are typically no longer available for study.
In light of these difficulties, researchers often compromise, comparing companies that have been very successful over ten or fifteen years (focal companies) with companies that have been less successful over that same time period (comparison companies). Some studies look for firms that have done very poorly over that time, and others look for comparison companies that have actually done pretty well—just not nearly as well as their focal companies. Either way, however, comparison companies have at least survived for the period in question, and over a ten–year period, mere survival is actually a pretty high bar.(4)
What this means is that most studies of the determinants of success have based their conclusions upon comparisons of the exceptional with the mediocre. Studies that systematically seek out successful companies will necessarily find those that in the past made the right commitments. And because the comparison companies are always firms that have performed less well, but not failed completely, they will tend to be firms that have avoided high–risk, high–return strategies. A review of more than thirty empirical studies, published in academic journals over the past twenty years, exploring the relationship between strategy and performance found none that had accounted for this bias.(5)
By examining primarily those companies that have guessed right and comparing them with those that have avoided guessing, what has been largely missed is the critical importance of managing uncertainty. The gallant charge and the cowardly retreat are not the only alternatives to catastrophic defeat. There is a way to boldly go, yet mitigate risk without compromising performance. Describing that solution is the promise of this book.
Accepting the strategy paradox forces us to accept mediocrity, giving up a chance at greatness as the price of our continued corporate existence. Resolving it will free us from a debilitating trade–off between risk and return and allow us to strive to be first without giving up the hope that we will last.
1.2 MUST COMMIT
The cause of the strategy paradox is as obvious as it is overlooked. A successful strategy allows an organization to create and capture value. To create value, a firm must connect with customers. For a firm to capture value, its strategy must be resistant to imitation by competitors. Satisfying customers in ways competitors cannot copy requires significant commitment to a particular strategy, that is, strategic commitments, to unique assets or
to particular capabilities.
Commitments are a powerful determinant of success because they make a strategy difficult to imitate. To reduce strategic risk, many firms invest only in what has been shown to work. Since these latecomers wait while some firms-the lucky ones-make what happen to be the right commitments, lucky firms enjoy a period of relatively little competition: it takes time to replicate capabilities so painstakingly created. For example, new products snapped together from off-the-shelf components are usually easily imitated by competitors, while those based on proprietary technologies developed over years are far likelier to be the foundation of a durable franchise. The downside of commitment is that if you make what happen to be the wrong commitments, it can take a long time to undo them and make new ones.
The strategy paradox, then, arises from the collision of commitment and uncertainty. The most successful strategies are those based on commitments made today that are best aligned with tomorrow’s circumstances. But no one knows what those circumstances will be, because the future is unpredictable. Should one have guessed wrong and committed to the wrong capabilities, it will be impossible to adapt-after all, a commitment that can be changed was not much of a commitment. As a result, success is very often a result of having made what turned out to be the right commitments (good luck), while failed...
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MSL review, China
<2008-03-19 00:00>
Raynor's strategy paradox is that companies that execute strategies may, by virtue of their commitment to their strategy, experience strategic failure. The example of Sony with Betamax and disc players is used illustrate new insights into these familiar cases of product failure.
This core idea is a fascinating extension to the core idea in The Innovator's Solution where Christiensen and Raynor argue the well managed companies will often overlook disruptive strategies being pursued by new companies with initially inferior products. The different business models required for the successful and emerging disruptive strategy may not be manageable by the same team.
Raynor's book addresses the issue of how should companies avoid overconfidence in their ability to develop strategies and implement in an uncertain environment. In brief, his prescription is to (1) explicitly manage the commitments to a strategy and (2) simultaneously manage the uncertainty around the strategy. The consequences of his prescription are important because they affect how organizations should view the role of executive and operating management.
His prescriptions for portfolio management are based indirectly upon options theory, and illustrated by examples from Sony, Vivendi, Johnson
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Clayton M. Christensen, Professor, Harvard Business School , USA
<2008-03-20 00:00>
One of the most important, realistic and useful books on strategy ever written. With consummate clarity and withering logic, Raynor confronts and resolves the paradox that while strategy requires commitment, much about the future is simply unknowable. It is an absolutely brilliant, lucidly written piece of scholarship. |
Jim Balsillie, co-CEO, Research in Motion , USA
<2008-03-20 00:00>
Raynor has taken the next giant leap forward in strategy. He demonstrates that much of what we know about creating value is true, but woefully incomplete. By widening our focus from simply the pursuit of success to include ever-present uncertainty, Raynor does more than simply alert us to the long-ignored risk/return tradeoff - he shows us how to break it. |
Peter L. Bernstein, author of Against the Gods, USA
<2008-03-20 00:00>
The best lesson in corporate strategy I have ever read. Everyone admits we do not know what the future holds, but most of us go on acting as though we do know what the future holds. That can be dangerous in the extreme. Raynor has it right: clearly and convincingly, he shows us why facing up to uncertainty is essential for sustainable success, and then he provides the tools and methods to achieve it. |
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