Saturday, May 31, 2014

Strategy is no longer a game of chess ...

HBR is rarely a publication I find to be of much use but occasionally it has articles which act as useful counterpoints. The latest of these is a post on 'Strategy is no longer a game of chess'

It's worth understanding the game of chess that is played between companies because it's a highly unusual game and one that I discovered after examining the level of strategic play vs action and impact on market cap (see figure 1).

Figure 1 - Strategic Play vs Use of Open as a means of changing markets and impact on Market Cap.

* The above is a bubble chart - the bigger the bubbles the more companies, from hi-tech industry in 2012. The conclusion was Strategic play had a stronger correlation with market cap change than action (e.g. in this case, use of open methods)

What was surprising from the study was :-

1) All  companies appear to be playing a competitive game (equivalent to chess)

2) The majority of companies had no effective way of visualising the "board" that they were playing on. This resulted in poor communication,  poor situational awareness,  a tyranny of action, unnecessary risks, poor scenario planning, disruption by predictable changes and weak 'why' in any strategic choice.

3) Without a means of visualising the environment, the majority of companies had poor mechanisms for organisational learning and hence understanding of basic economic changes.

4) The majority of companies seemed to rely on backward causality i.e. if company A does X and company A is successful then we should do X.

This study helped me finally understand why it was so easy to take over markets against well funded competitors as per the gameplay at Canonical vs RedHat. Yes, we were both playing a game of chess but only we could see the board - the battle was very one sided.

And hence to the HBR article. The conceit of the article is that companies know how to play chess and they've moved beyond this. Alas, for the vast majority, they have never been able to play chess. They have no way of visualising the board and are forced to simply copy others.

This is why when you compare strategy documents between companies that you'll find they contain almost identical terms - digital first, agile, cloud, big data, social media, insight from data, IoT, ecosystem, open, innovation, efficiency etc. These companies aren't moving beyond chess play, they're just scrambling to grab the latest meme because '67% of other companies do this'. Backward causality still rules strategic play.

Of course, some companies and Governments are learning how to play chess but there is little evidence to suggest that the majority of companies are moving up to a level of playing chess and certainly none to suggest the majority are moving beyond this.

Testing Yourself

If you want to test your state of strategic play, then you need to examine the level of situational awareness and gameplay in your organisation. The best way I know to do this is :-

1) Take your strategy document and rip out all operational, implementation, purchasing and tactical choices i.e. those things related to action - the how, the what and the when.

2) What is left should be the why. It's important to understand that why is a relative terms i.e why here over there. Hence 'why' should have been derived from an understanding of the landscape (situational awareness). Think of playing chess, you have multiple potential moves (the where) and why you chose one move over the others should be derived from situational awareness (understanding the board) and your gameplay. So, ask to see the board and ask 'why' this route was taken?

3) If no-one can show you the board nor explain clearly 'why' this route was taken nor explain what the 'why' is other than 'because our competitors are doing this' or 'because the CEO read an article in HBR' then you know you're playing a game of chess without looking at the board. In which case, you should just hope that your competitors are doing the same because if you're up against someone who can see the board then from experience they only need between 1/5th to 1/300th of your resources to take you out. Correctly used, the landscape is a massive force multiplier.

How much to pay for strategic advice.

I often get asked this, so I thought I'd add this as an aside. Good strategic play can be worth a small fortune but there are lots of variables such as the economic cycle, competitors gameplay etc. Someone who knows their craft is worth it though. However, the majority of large 'strategy' projects I've been exposed to are a complete waste of money.  I've seen million dollar projects I wouldn't pay tuppence for.

As a basic, any strategy project should first map out the landscape, compare the company with competitors on the landscape and identify opportunities, areas of efficiency and common approaches. This really must be done internally and it is nothing more than good house keeping. Any money you spend on getting outside help to understand your own landscape is pretty much a waste.

Once you have a good understanding of the landscape then it can be worth getting someone in to help advise on game play e.g. manipulation of markets through open means, building and exploitation of ecosystems, changing barriers to entry, tower and moat plays, use of regulations, uncertain changes etc.

These people aren't easy to come by - I've been doing this for a decade and I have a list of a dozen individual names, none of whom work for a big strategy company. Chances are, you won't find anyone better than yourselves at playing the game. Hence my advice is ... learn to play the game yourself.

In other words, I generally wouldn't pay a dime for outside strategy advice unless it helps you play a better game . The problem with advice is you're unlikely to get anything of real use and it won't help you develop your own internal capabilities. If you've never seen the documentary 'House of Lies' then can I suggest watching it before embarking on spending large amounts of hard earned cash on outside help. It's a pretty accurate reflection of what you'll be getting.
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