Webcast on principles of Principles of Business Strategy

I have stumbled upon blog Kallokain by Henrik Mårtensson but really haven't had time to read more. His most recent post includes webcast on business strategy principles and what tools Apple has used in battle against phone giants.

In addition to nice overview of principles in the webcast I recommend reading comments, they provide some useful insight as well.

On other note, I have Fast Strategy on its way from Amazon and I'll report back when I'm finished reading it.

Strategic Intuition

Here's something interesting: Strategic Intuition by Columbia professor William Duggan.

How Does Strategic Intuition Work?

Flashes of insight are so important that scholars have written about them for centuries. The best description comes from an early classic of military strategy, On War by Carl von Clausewitz. The word “strategy” entered the English language in 1810, when Napoleon’s success as a battlefield general made him emperor of Europe. His enemies started studying how he did it so they could learn it too and defeat him. Clausewitz’s account of Napoleon’s strategy matches amazingly well what modern neuroscience tells us about flashes of insight.

Clausewitz gives us four steps. First, you take in “examples from history” throughout your life and put them on the shelves of your brain. Study can help, by putting more there. Second comes “presence of mind,” where you free your brain of all preconceptions about what problem you’re solving and what solution might work. Third comes the flash of insight itself. Clausewitz called it coup d’oeil, which is French for “glance.” In a flash, a new combination of examples from history fly off the shelves of your brain and connect. Fourth comes “resolution,” or determination, where you not only say to yourself, “I see!”, but also, “I’ll do it!”

Interesting - I didn't know of this when I studied expert intuition last summer. However, our conclusions (I was working with a cognitive scientist) were broadly similar.

Teaches you to write about your ideas a lot faster...

Innovative Management - Gary Hamel, Lowell Bryan and McKinsey & Co.

A very interesting article in McKinsey Quarterly:

Innovative Management: A Conversation with Lowell Bryan and Gary Hamel

I'm going to return to this later in detail, but in short, it seems that management gurus are thinking along the same lines as we are:

Gary Hamel: The outlines of the 21st-century management model are already clear. Decision-making will be more peer based; the tools of creativity will be widely distributed in organizations. Ideas will compete on an equal footing. Strategies will be built from the bottom up. Power will be a function of competence rather than of position. In terms of the future of management, we’re at the beginning of what will be a fairly long journey. You can see some of the pieces starting to come together, but we’re not there yet.

So - decision-making at low levels; wide frontage for creativity; emergent, "recon pull" strategy...

Resource-Based View and Core Competencies: Results, not Objectives!

Resource-Based View of the firm used to be (well, still is - I guess the jury is out on this one) one of the most influential theories about understanding strategic management. Here’s one take on why I’m looking for something else.

Resource-Based View claims that sustained competitive advantage is derived from the “resources and capabilities a firm controls that are valuable, rare, imperfectly imitable, and not substitutable” (Barney et al. 2001). Resources can be things such as assets, organizational characteristics, processes, aptitudes, information and knowledge controlled by the company and its employees (Barney 1991).

Then, competitive advantage is defined as something that allows the company to earn above-average returns, compared to other firms in the same industry.

In other words, you win if you have and can continue to have something that other firm’s don’t have, and can combine those somethings into something else (that’s called the product) that is better than what your competition can do.

This leads us into the idea of Core Competency (Pralahad & Hamel 1990), which has been used often to justify all kinds of business activities from outsourcing to training. In short, it’s about the idea that there are activities what you can do better than the competition, and others where someone else is a better choice - and that you should concentrate on the things you can do really well. If that core competency is sustainable, then it is sustainable competitive advantage. In technical terms, that would indicate the presence of piles of money and stock options.

Coyne, Hall and Clifford (1997) open the definition a little by proposing that for a competency to be a core competency, “the skills or knowledge must be complementary, and taken together they should make it possible to provide a superior product.” Leonard-Barton (1992) says that core competency should differentiate a company strategically.

This is sound advice and a neat, not to mention hugely influential theory. The problem is that it doesn’t really give any directions of what to do as practicing managers or consultants.

Like many others have noted (for example, see Priem & Butler 2001), the entire resource-based view smacks of tautology and circular logic. Almost everything can be a “resource”, so you can pick any successful company and point out that those and those are the core competencies.

Even the inter-evaluator agreement inspires confidence only rarely. For example, some say that Volvo’s core competence is safety - and others tell it’s really in the sourcing process of high quality components. Probably someone else could say that it’s the managerial skill to pick good people to lead the sourcing process…I sometimes wonder how many Master’s thesis are written about the subject and how many of those agree with each other!

Other criticisms from Priem & Butler are that one can get to the same result via different resource configurations, and that - interestingly enough, since we and others are sometimes equating marketplace with battlespace - the role of product markets is underdeveloped in the argument.

What’s more damning is that resource based view and core competency thinking (incidentally, this applies to most business research) are really good at telling you what you’ve done well after the fact, but for guidance on future directions?

What I say isn’t that RBV and core competencies should be ditched, but that they (especially core competencies) should be seen as results instead of objectives.

And more specifically, they should be seen as results of long-term Boyd cycling the competition. That’s where those competences are forged: in the crucible of training, practice, and success, which leads to increased internal cohesion, elimination of needless or harmful practices, better morale, and intuitive understanding of the environment, among others.

In academic-speak, competencies are path dependent, meaning that in order to achieve similar capability, one must go through similar experiences. (Although note again that one can achieve similar outcomes through entirely different capabilities. There are water desalinization plants and aquifer drills, and both use quite different competencies to produce drinking water.)

In other words, there are no true shortcuts to happiness - and I’ve noticed that this is something that just isn’t understood by many people, no matter what their rank or bonuses. The story of General Motors trying to copy Toyota’s practices is just one case in point.

Core competencies are not something that one can just start doing and say, “we have these core competencies”. They are emergent, in other words. And here’s the rub: there’s no way of predicting company’s future core competencies from a set of resources it possesses, unless you take some absurdly abstract position and say that a company’s core competency is in creating core competencies... Which, when you think about it, brings you back to out-cycling the competition and therefore creating the capability.

So here’s a trick question: why do you need to out-cycle your competition to develop a sustainable competitive advantage?

The Evolving Bases of Competition

from Hayes, R., Pisano, G., Upton, D. & Wheelwright, S. (2005) Operations, Strategy and Technology: Pursuing the Competitive Edge. John Wiley & Sons

p. 7-8:

...In the early 1970s, most competition in the U.S. was price-based. Within a given industry, defect levels, breath of product line, delivery times, and the rate of new product introductions tended to be roughly similar across companies, thus, rendering them "neutral" as far as competitive differentiation was concerned. ... "The American consumer will not pay for better quality", confidently stated one top auto industry executive to a class of Harvard MBA students back in the mid-1970s.

This, of course, was about the time many Japanese companies were beginning to mout attacks on U.S. markets based on their product's superior performance, fit, and finish, as well as defect rates that were one-hundredth or less of the levels that had been acceptable before. And European luxury cars began flooding U.S. markets in response to an exploding demand for clearly superior - and vastly more expensive - performance and appeareance. In the 1980s, quality became "Job #1" at Ford and many other companies...

...Clearly, a fundamental shift in consumer preferences had occurred: quality had moved from being a neutral basis of competition to being a powerful source of competitive differentiation.

The resulting, somewhat frantic, efforts by U.S. companies over the next decade to reduce costs and improve quality ... succeeded in narrowing the gap between U.S. and Japanese products in many industries - to the point where often those attributes no longer served as effective bases for competitive differentiation. This kind of competitive stalemate usually presages a new assault from a different direction (one must be careful not to prepare oneself to fight the previous war, as Marshall Foch vainly warned France in the 1930s). Indeed, even as companies belatedly recognized and grudgingly responded to the quality revolution, another competitive battleground began to emerge: flexibility and product variety.

The authors go on to point out that after flexibility and variety, the next "battleground" was the speed of new product introduction.

Are we straining the analogue here if we note that

a) there might be an OODA loop in action,
b) this illustrates the changing balance from ch'i to cheng (ch'i becomes cheng)?