Strategy: A brief history
While strategy has existed in many organisations—particularly military—for many years, corporate strategy as a modern discipline really only kicked off in the early 60s. Prior to this, market forces were considered largely beyond the control of individual firms. What Adam Smith referred to as the “invisible hand”.¹
The late 50s did contribute some initial building blocks however, like Joe Bain’s book on barriers to entry (1956), Philip Selzinck introduction of SWOT (1957), Igor Ansoff’s matrix (1958), and Peter Drucker’s writings on competition.
1960s
In the 60s however, corporate strategy really started coming into it’s own, as “fattish, complacent American companies found themselves confronted with competition from unexpected quarters”.² As these companies looked for ways to fight back, they turned to academics and consultants for help. The 60s gave rise to a number of strategy consulting practices, the leaders of which are considered among the original strategists; namely Bruce Henderson (BCG), Bill Bain (Bain & Company), and Fred Gluck (McKinsey & Company).
Strategy at this stage was largely a planning exercise. A 1962 HBR article The Anatomy of Corporate Planning set off a deluge of models of a process by which strategy could be formally developed and operationalised. Strategy quickly came “to mean a complex and meticulously wrought plan based on detailed forecasts of economies and specific markets”.³ A view endorsed by two early books; Alfred Chandler’s Strategy and Structure (1962), and Alfred Sloan’s My Years with General Motors (1963).
It was Alfred Sloan who is credited with effectively conceiving the modern corporation while at General Motors. He based it on hierarchical military organisations, where orders flowed downwards and your rank determined your responsibility, a design which we have since struggled to break free from.
1970s
Two of the first widely popular concepts in strategy came in the 70s.
BCG’s growth-share matrix aimed to help companies decide where to invest based on underlying drivers of relative market share and growth rate. Each quadrant requiring a different strategy, for example milking your “cash cows” or divesting your “pets”.
The second was Porter’s five-forces model. At 32 years old, a young Michael Porter published his first article in the Harvard Business Review in 1979 entitled How Competitive Forces Shape Strategy. In it he articulated five competitive forces that determine an industry’s “long-run profitability”, and included how “strategy can be viewed as building defences against the competitive forces”.
“I was struggling to teach using the SWOT framework at HBS. I set out to add more rigour”. ⁴
It was a popular article and prompted his first book the next year, Competitive Strategy, which is probably still the most acclaimed book on strategy. As strategist Gary Hamel said, “we have all been building on the shoulders of Porter ever since.” ⁵
1980s
By the 80s, strategy was starting to lose it’s shine.
For starters, strategy had become synonymous with elaborate planning exercises. When Jack Welch became CEO of GE in 1981, one of the first things he did was dismantle their widely revered strategic planning process, because, as he said at the time “the books got thicker, the printing got more sophisticated, the covers got harder and the drawing got better” but none of that resulted in improved performance. Welch tried to later said “Strategy is very straightforward. You pick a general direction and you implement like hell.”
The most popular related book of this decade was McKinsey consultant Tom Peters’ In Search of Excellence (1982). Peters studied several high performing companies in an effort to determine the common traits that drove their success. It is one of the best selling business books of all time, although was heavily criticised for it’s research methodology and the poor performance of the companies post publication, as with other books in this vein like Jim Collins & Jerry Porras’ Built to Last (1994).
Peters’ research had led to some skepticism of more planned approaches to strategy. Fortune magazine once polled consultants who claimed that less than ten percent of strategies are successfully implemented. A number which Peters referred to as “wildly inflated”. ⁶
In 1985, Porter published his second book, Competitive Advantage, which articulated the value chain as a collection of activities which a company could optimise in order to gain a “sustainable competitive advantage”.
1990s
By now strategic planning was being called out as “simply another oxymoron, like progressive conservative or jumbo shrimp”, as Mintzberg wrote in his book The Rise and Fall of Strategic Planning (1994). People recognised it as being inflexible, incremental, generic, and short term focused.⁷ Now those claiming to be in the know were splitting activities between strategic thinking and execution planning. But more importantly perhaps, the discipline of innovation was starting to play a more central role in mainstream strategy.
In 1995 Rita McGrath & Ian MacMillan published Discovery Driven Planning in which they argued that planning for a new venture required a totally different approach to strategy than planning for a more conventional line of business. It went on to be one of the best-selling HBR articles of all time and was one of the foundational ideas behind the lean startup movement.
In a recent interview⁸ Rita described how when she started out, “strategy was in one corner of the room, and innovation in the other corner huddled for warmth. And all the cool kids were doing strategy, doing very numerical based work like industry sector analysis, and profit impact of market strategies studies.” But how these two disparate fields of competitive strategy and innovation were now quickly coming together.
That same year Clayton M. Christensen (w/Joseph L. Bower) published an article on disruptive innovation which radically changed how people thought about disruption, competitive advantages, and managerial incentives. Theories he expanded on two years later in The Innovator’s Dilemma.
C.K. Prahalad and Gary Hamel published The Core Competence of the Corporation (1990), in which they encouraged firms to expand their skills and then find markets in which to exploit them. Strategy up to now had been largely about positioning, but here Prahalad & Hamel were saying don’t just think of a company as a portfolio of products and how those products are positioned in the marketplace, but instead think about the deep underlying capabilities that allow that company to do something nobody else can.
Richard D’Aveni published a book coining the term hypercompetition (1994) to characterise markets in which a firm’s competitive advantage would be quickly competed away.
Afterall, this was the decade that gave birth to the world wide web. Companies like Amazon were starting out and exploring the new possibilities being created by the internet. There was a question over how relevant the existing strategy models were going to be in this new frontier.
2000s
Fast forward a few years and the dot-com bubble had become the dot-com crash, and strategy’s role was again placed under the microscope. As the discipline moved from schools of planning, to positioning, to structural, increasingly all approaches were being derided for their “glaring weakness”, which was their “static nature”.⁹ Rapid technological change, increased globalization and new levels of interconnectedness had changed the landscape significantly, and strategy was struggling to keep up.
In 2000 Gary Hamel published Leading the Revolution. Rather than hoping to come up with a breakthrough strategy every decade or so, Hamel was exploring how companies could build organisations capable of creating an endless stream of strategic innovations.
The biggest release of the decade however was W. Chan Kim and Renee Mauborgne’s book Blue Ocean Strategy. In it they advocated for strategies which focused on creating new markets, as opposed to ones which focused on competing in existing markets. They aimed to provide practical tools which companies could use to develop “uncontested market spaces where the competition is irrelevant”.
2010s
In Good Strategy/Bad Strategy (2011), Richard Rumelt said that “even though everyone is talking about it, there is no concept in business today more muddled than ‘strategy’.” That is has “become a verbal tic…stretched to a gauzy thinness”.
Innovation was increasingly becoming the core focus of strategy, although whereas previously the focus had been on corporation innovation, now people were writing about start-up innovation. The academics and consultants who typically drove strategy had been so focused on big corporations, they had overlooked the extent to which start-ups were different. These small companies weren’t focused on execution, but were “searching for a repeatable and scalable business model”¹⁰ and operating with this amount of unknowns required a new stack, and new strategies.
Steve Blank was writing about a “customer development” model that encouraged entrepreneurs to “get out of the building” and test their hypotheses with real customers. His mentee Eric Ries combined this with agile development practices and published The Lean Startup (2011) which set off a movement and introduced “MVP” and “pivots” into business vernacular.
Alexander Osterwalder and Yves Pigneur published Business Model Generation (2010) centered around their business model canvas, shifting the focus away from product innovation, and towards business model innovation. They went on to publish Value Proposition Design (2014) and more recently advocating for corporations to maintain a portfolio of business models.
Rita McGrath’s book The End of Competitive Advantage (2013) argued that “virtually all strategy frameworks and tools in use today are based on the single dominant idea: that the purpose of strategy is to achieve a sustainable competitive advantage”, but that this—strategy’s “most fundamental concept”—is “no longer relevant for more and more companies”. Similar to what Hamel coined “evolutionary advantage”, McGrath argued companies need to scrap the pursuit of sustainable competitive advantage, and instead pursue “transient competitive advantages” that can be found, exploited, and disengaged like a surfer riding from wave to wave.
Roger Martin and P&G’s Alan Lafley argued for a more deliberate approach to strategy formulation in Playing to Win: How Strategy Really Works (2013). Pushing back against the growing popularity of adaptive approaches—which Martin called a “cop-out”—they argued that with 5 questions, you can determine “where to play and how to win,” backing it up with examples from their previous collaborations, like the successful resurgence of Oil of Olay.
The head of BCG’s strategy institute Martin Reeves tried to clear things up somewhat in a book Your Strategy Needs a Strategy (2015). But rather than throwing his weight behind one school of thought or another, he believed there is no panacea, just horses for courses, and tried to help strategists identify which one suited their enviornment best.
The most recent publication at time of writing was Ming Zeng’s Smart Business (2018). As Strategy Chief for China’s Alibaba, he set out to explore “what Alibaba’s success reveals about the future of strategy”. He argues that companies must move their activities online as much as possible, in order to capitalise on the possibilities afforded by coordinating “online networks [which are] using machine-learning technology to efficiently leverage data in real time.”
2020s
So as this decade comes to a close, it’s hard to really say what state strategy is in now. After decades of theorising, disagreements, and changing fashions, many business leaders are still unsure where to jump in.
As BCG’s Martin Reeves said, strategy is now a “slightly old fashioned, faintly pompous word”. He jokes about how, as head of strategy for a strategy consultant, some of the companies he works with have lost faith in strategy, don’t believe in it, and in some cases don’t even want to hear the word being used.
Rumelt complained “the gap between good strategy and the jumble of things people label as ‘strategy’ has grown over the years”,¹¹ but at this juncture it seems we that gap is only going bigger. But maybe that’s okay? Mintzberg said in Japan for example “they don’t use the term strategy to describe a crisp business definition or competitive master plan”.¹²
McKinsey & Company’s global managing partner Dominic Barton wrote a book (Talent Wins, 2018) in which he argued the era “when strategy was paramount is over”, and that today “talent drives strategy, as opposed to strategy being dictated to talent”.
Remember, these statements aren’t coming from naive dissenters who ‘just don’t get it’. These are coming from the very institutions that got us here, like the BCG and McKinsey examples above.
Buying ads is now considered a marketing strategy, acquisitions a growth strategy, lowering prices is a low-price strategy. Some people say strategy is setting big hairy audacious goals,¹³ or stretch targets.¹⁴ Some people are still confusing it with planning.¹⁵ Some consider it a synonym for success or ambition. Some consider it indistinguishable from execution. And after all that, sure Drucker said culture eats strategy for breakfast anyway.
To adapt a quote from 1974 about budgeting¹⁶, it seems “the purposes of strategy are as varied as the purposes of men.”
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¹ Competition and Business Strategy in Historical Perspective. 2002. Pankaj Ghemawat. Link
² Lords of Strategy: The Secret Intellectual History of the New Corporate World. 2010. Walter Kiechel. Link
³ Strategy Bites Back: It Is Far More, and Less, than You Ever Imagined. 2004. Henry Mintzberg, Bruce Ahlstrand, Joseph Lampel. Link
⁴ An Interview with Michael Porter. 2002. The Academy of Management Executive. Link
⁵ Podcast: Gary Hamel on strategies and bureaucracy. Link
⁶ Sniping at Strategic Planning. 1984. Kietchel
⁷ The Rise and Fall of Strategic Planning. Henry Mintzberg
⁸ Podcast: HR Leaders interview with Rita McGrath. Link
⁹ Changing the Conversation: Tuck and the Field of Strategy, by Richard A. D’Aveni. Link
¹⁰ Why the Lean Start-Up Changes Everything, by Steve Blank. 2013. Link
¹¹ Good Strategy/Bad Strategy: The Difference and Why It Matters by Richard P. Rumelt
¹² The ‘Honda Effect’ Revisited. 1996. Mintzberg, Henry , Richard T. Pascale, Michael Goold, and Richard P. Rumelt. Link
¹³ Built to Last: Successful Habits of Visionary Companies. 1994. James C. Collins and Jerry I. Porras
¹⁴ The Core Competence of the Corporation. 1990. C. K. Prahalad & Gary Hamel
¹⁵ The Big Lie of Strategic Planning. 2014. Roger L. Martin. Link
¹⁶ The Politics of the Budgetary Process. 1974. Wildavsky. Link
