How do you drive home a strategy to fulfill your future, when everything around you is changing?
The secret, according to McKinsey & Co senior advisor, Eric D. Beinhocker, is to radically review what we mean by strategy. In his 2006 book, The Origin of Wealth, Beinhocker argues that rather than thinking of strategy as a single plan built on predictions of the future, we should think of it as a portfolio of experiments, a population of competing business plans that exist within the decision making process but evolve over time.
In other words, we should plan for success the way venture capitalists plan to profit. We should bank on uncertainty, assume a high failure rate, and spread resources across a range of opportunities, each of which may or may not turn out to be the winner. Each plan in the decision making process should be evaluated on its return against investment, its risk profile, its competitiveness and the resources it will require to bring it to fulfillment.
This is a very different approach than the “one plan forever” definition that many still have of strategy.
By way of example, Beinhocker examines the options facing Microsoft in 1987. These were radical times. Computing was booming, and MS-DOS was all but dead on its feet, The future was unclear, Microsoft was still relatively small, IBM was developing OS/2 system, Unix was on the horizon and Apple remained a threat. Faced with these dynamics, Beinhocker says that Microsoft seemed to have three options. The first was to “bet the company” on Windows. The second option was to exit the operating-system market. The third option was to sell the company or otherwise team up with one of his major competitors.
“The conventional wisdom,” says Beinhocker, “is that Gates chose option one, and the big bet paid off … But that is not actually what happened. What Gates and his team did was much more interesting — they simultaneously pursued six strategic experiments.” (You’ll need to read his book to find out what they were).
Beinhocker’s observation on Gates’ approach to the decision making process answers the strategy/timeframe dilemma: “what Gates did was that he set a high-level aspiration — to be the leading PC software company — and then he created a portfolio of strategic experiments that had the possibility of evolving toward that aspiration.”
By setting up what amounted to six competing business plans, pursuing them simultaneously and never taking their eye off the big aspiration, Microsoft was able to see its way through the mire. As Beinhocker notes, over time, five of the six options available to Microsoft withered or died a natural death, leaving Windows as the primary strategy to achieve an aspiration that had not changed at all. The decision making process resolved itself – something Microsoft could never have known from the start. And time worked in favor of the decision making process rather than against it.
Beinhocker draws four conclusions:
- Management needs to create a context for strategy.
- Management needs a process for differentiating the business plans so that there is a portfolio of diverse plans – not variations on the same theme.
- The organization needs to create a selection environment that mirrors the environment in the market.
- Processes need to be established that enable amplification of successful business plans and the elimination of those that prove unsuccessful.
Michael Raynor has a similar approach to Beinhocker in The Strategy Paradox. His main argument too revolves around the fact that you can’t plan with certainty, so you might as well plan for uncertainty. Instead of going with one strategy, and playing win or lose, Raynor too advocates that companies build a portfolio and treat the strategies like options for uncertainty, that can then be “cashed in” as a particular future unfolds.
In the world of branding, we’re very used to talking about “the big idea” because most successful brands revolve around a single, compelling and differentiated thought. But Beinhocker’s plan of ensuring that the single big idea is the aspiration and then “lab”-ing strategies to get you there will come as news to many. And Raynor’s approach of facing up openly and honestly to uncertainty seems entirely sensible. It reminds me, in the best way, of Jim Collins’ Stockdale Paradox.
This portfolio approach to the decision making process appeals to me because of the way it combines multiple in-market responses with survival of the fittest. It’s an approach that means all the “doing” is aligned to the thinking, but in very different, even contradictory, ways. Ideas are litigated, sorted and sacked in situ, even as the market, competition and consumer preferences change around them. Uncertainty becomes the filter rather than the excuse.
Google are a great example of the portfolio mindset in action.
The huge strength of Google’s approach is that the premise for their business vastly exceeds the definition that their competitors have chosen to do business under. While everyone else was asking “what can we find with the internet?”, Google’s audacious question was “what on earth needs to be found … and what will people pay for that?” As we all know, Google has since ‘labbed’ a whole range of initiatives to answer that question – with varying degrees of success – and derived a revenue model that continues to drive directly off that idea.
Having a dazzling aspiration also prevents strategy-drift – the approach that sees brands working from pillar to post through a steady stream of ideas and pursuing them with zest, before abandoning them, finding something new, and starting again. The result is often a voyage of Ulyssian proportions, characterized by temptation after temptation, and a mix of casualties, calamities and the occasional triumph, achieved more by good luck or statistical eventuality than anything else.
Don’t get me wrong. There are casualties, calamities and triumphs too with the portfolio approach. The huge difference is that, if it’s done properly, each one of these developments should help the company move closer to its aspiration.
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