Thoughts on Strategy

On the journey to commercial success, strategy defines both the pathway to take and, as a result, the roads not to be traveled. Subsequent tactics make up the means with which we are to get to where we are headed — the shoes on our feet or the horse in front of the cart. Importantly, the relationship does not work the other way around; it puts the cart in front of the horse and even if it were to push the cart forward, it would not have any idea of where it was going, its view obfuscated by the wagon before it.

Of course, the reality of business is inherently complex and, as a result, strategic choice is risky. We will never be able to know for sure how our choices will turn out. It follows that, to paraphrase Phil Rosenzweig, the primary task of strategic leadership becomes to gather information and consider it thoughtfully, then make choices that, while risky, provide the best chances for success in a competitive industry setting. The only way to lower that risk and limit uncertainty is by ensuring one makes as few assumptions as possible, both in terms of the outside (customers, rivals, technologies) and the inside (causal ambiguity relating to internal capabilities).

This is no revolutionary truth — Occam’s razor states that when presented with competing hypotheses to solve a problem, one should select the solution with the fewest assumptions — but it remains true nonetheless. The more assumptions made, the more potential points of failure and opportunities to be wrong. There is a significant difference between being 90% correct 90% of the time, and being 100% correct 10% of the time. Or to put it differently: assumptions may lead you to be largely right, but also hugely wrong.

The key to removing assumptions is acknowledging our propensity towards them in the first place. No matter how certain of the contrary one may be, we all view the world subjectively through lenses that have evolved across millennia. Consequently, we are susceptible to narrative fallacies, confirmation biases, illusory superiority, clustering illusions and halo effects. While this affects how we interpret data, we can decrease the degree to which results are skewed: by valuing data over anecdotes, quantifiable experience over generic advice and critical thinking over alluring promises.

Every analysis will be biased, every model will have its assumptions, so it is imperative that we identify what they are, keep them to a minimum and practice our Bayesian thinking.

Much of modern business strategy discourse falls into two categories. On one hand, there are corporate astronomers, who treat business analysis as if it were physics. On the other, there are corporate astrologers, who provide generic solutions to specific challenges. Unfortunately, both are demonstrably wrong, as they claim able to provide the unprovidable: steps to guaranteed success, something we know not to exist. Businesses do not run with the precise predictability of Swiss clockwork. Rather, due to their complexity, they are much more like clouds, as Karl Popper once wrote. We speak of the vagaries of the weather. Perhaps we should also speak of the vagaries of companies.

Of course, such a proposition is significantly easier to offer than implement. We are all psychologically primed to gravitate towards easy-to-understand answers with the speed at which they fit our personal narratives. Unfortunately, this inherent desire to provide a seemingly coherent direction to events may lead us to see patterns that don’t exist, infer causes incorrectly and ignore facts that don’t fit the story.

The only way to obtain an optimum result, or at least of increasing the odds of reaching such an outcome, is by analyzing the individual problem at hand and providing a tailored strategic solution. Salvation may appear in the form of similarity, but the Devil is found in the crucial differing details.

Nobel prize winning physicist Murray Gell-Mann once said, “imagine how difficult physics would be if particles could think”. In so many words, that is the reality that has faced any business in history — ultimately, at least for the time being, the customer is human and therefore post-rationalizing beings more so than rational beings. As a result, repeatability in business related fields is consistently inconsistent. Financial theory is largely based on realities that don’t exist, marketing research has a repeatability rate of less than 2%, management books are proven wrong the moment they hit the shelves and psychology hypotheses are disproven daily.

Strategy must factor all this in and allow space for testing that makes contextual sense. Trial-and-error carries risk and uncertainty, but risk can be managed and uncertainty accounted for. It is a matter of finding ways to improve the odds of success, never imagining that success is certain, while always remembering that performance is relative. The key to business growth is not doing things well, but doing things better that one’s competitors. That requires challenging the status quo, going outside of the comfort zone and trying the angle that others haven’t.

Strategy is choosing what to do, and thereby what not to do, its essence one of sacrifice. Yet standing still is the riskiest move of all. Curiosity killed the cat, but complacency kills companies. Decide where you want to go and take the step.

Or end up lost in the dark.