Learning your way to a strategy

A primer on Adaptive Strategy

Gary Hamel, who Forbes described as “the world’s leading expert on business strategy” once said “the dirty little secret of the strategy industry is that it doesn’t have a theory of strategy creation. We don’t know how it’s done”.¹

How can that be? Surely he knows better than anyone how strategies are created. You interview key stakeholders, analyse the market, benchmark the competition, and then gather the senior leadership team in a hotel conference room for two days. At this offsite you go through all that data, plot a new course, and then communicate that strategy back to the rest of the organisation who are primed for execution.

But Hamel, like many others, disagrees with this theory of strategy creation. “Strategising is not a once-a-year rain dance, nor is it a once-a-decade consulting project”. In fact, he says “it’s clear that strategising isn’t a thing, and neither is it a process”, but rather a skill or capability that must be deeply embedded across an organisation.

Let’s back up.

Origins

We know that corporate strategy was initially very focused on planning and analysis. But right from the start academics and practitioners were publicly questioning the mainstream idea of strategy as a neat, orderly, and controlled process.

In 1959 Charles Lindblom published an article entitled The Science of ‘Muddling Through’. Lindblom argued that strategy was more akin to “a never-ending process of successive steps in which continual nibbling is a substitute for a good bite”.²

Lindblom’s writings were more focused on government but “struck a chord” in the business world too. Cyert & March’s A Behavioural Theory of the Firm (1963) explored this idea from a number of angles, but one of the first clear articulations was by Henry Mintzberg in his publication Patterns in Strategy Formation (1978). Here Mintzberg framed the ‘adaptive mode’ in sharp contrast to a ‘planning mode’ which was considered a “highly ordered, neatly integrated [approach], with strategies explicated on schedule by a purposeful organisation.”

In 1980, James Quinn published Strategies for Change in which he studied how companies actually went about formulating strategies. He found that they proceeded by trial and error, constantly revising their strategy in the light of new learnings, which he called “logical incrementalism”. Critics felt this sounded suspiciously like just having no strategy, but Quinn strongly denied this, arguing that there were great benefits to formalising the process.³

In 1985, Of Strategies, Deliberate and Emergent, Mintzberg honed his views on what he now called Emergent strategy. He playfully argued that strategies should grow initially like weeds in a garden, not cultivated like tomatoes in a hothouse. That the process can be over-managed and “sometimes it is more important to let patterns emerge, than to force an artificial consistency upon an organisation prematurely”.⁴ Mintzberg contributed more than anyone over the years to this idea, later referring to it as “The Learning School”.⁵

Henry Mintzberg, The Rise and Fall of Strategic Planning

Formation vs Formulation

Thinking back to Hamel’s dirty little secret comment, the key question being asked by the adaptive school has always been ‘how does an organisation actually come up with a strategy?’. “We all know a strategy when we see one” Hamel says, and “in business schools, we pin those strategies to the wall like butterfly specimens and study them. But it’s all after the fact”. Professors see a good strategy, make a case study out of it, and then teach using those cases. But this doesn’t address how those strategies were formed in the first place.

Scholars like Mintzberg and Hamel argue that when you actually look at it, you find that most strategies don’t come out of a formally planned process, but rather they tend to emerge. As people solve small problems and validate ideas, they learn their way to new strategies.

Take the example of McDonalds who, in an effort to just try and utilise their idle burger kitchens in the morning, trialed a McMuffin, the subsequent success of which then propelled them into a hugely lucrative breakfast market. The fact P&G made Pampers—the first disposable nappy—exclusively for travel, never dreaming people would use them for anything else. Or the fun story about how Honda learned their way to success in the US motorcycle industry.

Or take IKEA. For thirteen years IKEA sold assembled furniture in retail stores, and using brochures & shipping, despite it being “difficult and expensive, and products often [getting] damaged”.⁶ And then one day, an employee was frustrated trying to fit a LÖVET table into the back of his car and decided to take the legs off. Later thinking to himself ‘hang on if i’m having this trouble, surely customer’s are to’. And so began their successful road into flat-pack.

LÖVET. “A little table that contributed to a great idea.”

Or when the opening of a new flagship store in Stockholm was far more popular than expected, the inundated staff told the shoppers to just go retrieve products from the warehouse themselves. Something that today we consider a staple part of the IKEA experience. To use Mintzberg’s phrasing, these strategies emerged like weeds all across the organisation.

New opportunities like this are being realised all the time by those on the front lines of organisations, however most business leaders lack confidence in their originators, and lack a process for capturing them. Amazon is maybe the best example of a company today who has successfully learned it’s way to new strategies with billion dollar successes like AWS and Prime, both of which originated from employee insights at the edge.

After all, this is a company who’s original business plan in 1994 stated “no warehouses, no stock, no shipping”.⁷

Role of Leadership

As Lindblom said back in ’59, in this adaptive world, strategists “may not look like heroic figures”. There are no grand pronouncements from CEOs coming down from the mountain yielding new strategies on tablets. The role of leadership becomes not to preconceive deliberate strategies, but to manage the process of strategic learning, whereby novel strategies can emerge. Enabling on the ground learning that leads to strategies.⁸

How can you grow strategies throughout your organisation? Hamel argues that everyone has the capacity to be a great strategic innovator. “You can teach people how to become more alert to what’s changing, to give you leverage to do something new. It just takes a curiosity”.⁹

Strategy at its core is about differentiation. And to have a differentiated strategy, you have to start with differentiated insights. You have to know something, or believe something, or see something in the world that other people haven’t seen and then see if there’s an opportunity in that.

Critique

Not everyone is convinced of course. After all, this is all in stark contrast to the most widely accepted view of strategy creation as a rational, centralised process by which you formulate and then you implement.

Michael Porter is considered probably the most influential strategist of all time and he himself “favours a set of analytic techniques to develop strategy”.

Roger Martin, the #1 ranked management thinker in 2017, describes the adaptive strategy model as a “cop out”, believing it to be “an excuse for not making hard, dangerous choices”. But Martin—recognising Mintzberg as “one of the finest management scholars of all time”—does try to find common ground, agreeing with the “notion that strategy is more ‘emergent’ than we might like to think”.⁹

BCG’s senior partner and managing director Martin Reeves published a short paper on adaptive arguing that it’s all about context; that an adaptive strategy is required in an adaptive environment. In these instances “winning comes from adapting to change by continuously experimenting and identifying new options more quickly and economically than others”.¹¹

But you don’t have to pick a side. Cases like the Honda effect tend to pit the schools against each-other, but Mintzberg contends that neither side is wrong, just narrow. He uses the word strategy for both emergent and deliberate behaviour. “In practice, all strategy making walks on two feet, one deliberate, the other emergent. Pushed to the limit, neither approach makes much sense. Learning must be coupled with control”.¹²


References

¹ “Killer Strategies”, 1997. Link

² Charles Lindblom, “The Policy Making Process”, 1968.

³ “Strategy bites back”, Henry Mintzberg. / The economist 1993.

⁴ “Mintzberg on Management”, 1989, Henry Mintzberg.

⁵ “Strategy Safari: A Guided Tour Through The Wilds of Strategic Management”, 1998, Henry Mintzberg, Joseph Lampel and Bruce Ahlstrand

⁶ IKEA website: The IKEA Concept. Link

⁷ “The end of the beginning”, 2018, Benedict Evans. Link

Strategy Safari…

⁹ Podcast: “Gary Hamel on strategies and bureaucracy”. link

¹⁰ “The Big Lies of Strategy”, 2018, Roger L. Martin. Link

¹¹ “Adaptive Advantage”, 2010, Reeves, Martin, Michael S. Deimler, Yves Morieux, and Ron Nicol. Link & “Your Strategy Needs a Strategy”, 2015, Martin Reeves.

¹² “Crafting Strategy”, 1987, Henry Mintzberg. Link