In a later article, Kim and Mauborgne developed the distinction further, identifying the importance of not only a value proposition that would attract buyers but also a profit proposition so that money could be made, and lastly a people proposition to motivate those within the organization to work for or with the company. From this they defined strategy as “the development and alignment of the three propositions to either exploit or reconstruct the industrial and economic environment in which an organization operates.” If these propositions were out of alignment—a great value proposition but no way of making a profit or a demotivated staff—then the result would be failure. Only at the top of the organization, with a senior executive able to take a holistic view, could the propositions be developed. On this basis they argued that “strategy can shape structure.” The title marked the shift from Chandler, whose formulation was about the effect of strategy on internal organization, to the new quest to use strategy to change the external environment.34
This takes us back to Ansoff’s distinction between strategy as a relationship to the environment and strategy as decision-making with imperfect information. The broad thrust of business strategy came under the first heading. The second more campaigning form of strategy, which dominated the military literature, was put in a more subordinate position, a challenge of implementation. Porter argued that the environment shaped and limited a business’s strategic options; Kim and Mauborgne claimed that these limits could be transcended through imagination and innovation. Porter claimed that the competition could be beaten by either differentiation or price; Kim and Mauborgne claimed that it was better still to develop products in areas where there was no competition, but they then had to develop a business case and have the staff to make it work.
This view of strategy as a general orientation toward the environment offered a framework for evaluating all other endeavors within the organization. Strategy of this sort had to be long term, and it might have the elements of a plan, with an anticipated sequence of events geared to an ultimate goal. The strategy could be much looser than that, however, setting out a number of goals with some sense of priorities, available resources, and preferred means, maintaining considerable flexibility to allow for changing circumstances. How well either approach would work would depend on the nature of the environment. The more stable the less the freedom to maneuver and so less scope for a strategy of any sort other than one of internal adaption. Even a reconstructionist strategy would still be affected by responses from potential competitors who might appreciate what was going on or other actors who might be able to influence the demand for new products.
Such theories still lacked a formulation as compelling as Clausewitz’s portrayal of the dynamic interaction of politics, violence, and chance. There was not even a concept comparable to Clausewitz’s friction, although executives were always likely to experience their own versions of the fog of war. There were few incentives to dwell on such matters in a literature increasingly infused with promotions of particular strategic nostrums as the author’s unique product. The promise was of success following a true interpretation of these nostrums according to circumstances, and the will to see it through. The tendency therefore was to play down the unforeseeable factors that could frustrate the best laid plans, whether a rogue calculation in product design, a misjudged advertisement, sudden fluctuations in exchange rates, or a terrible accident. Moments could arise in business as in politics when long-term aspirations had to be put to one side in a desperate struggle for survival, as a reliable market evaporated or development process failed to deliver or debts were called in. At such moments, priorities would need to be clarified, help sought wherever it could be found, and exceptional demands made of the organization. Other types of events might require no more than mid-course corrections or a reappraisal of one element of the overall approach. Knowledge of a coming event—such as a presentation to investors, a product launch, or a meeting with customers—could raise issues that had hitherto been neglected or illuminate aspects of the changing environment that had been missed before.
The influence of equilibrium models from classical economics on business strategy remained strong, while alternative concepts of non-linearity, chaos, and complex adaptive systems, though picked up by military strategists, were less in evidence. An article by Eric Beinhocker pointed to the challenge. An open system constantly in flux, shaped and reshaped by many agents acting independently, could seem more relevant to companies than a closed system tending to equilibrium. For example, a characteristic of complex adaptive systems was described as “punctuated equilibrium,” referring to when times of relative calm and stability are interrupted by stormy restructuring periods. At such time, those whose strategies and skills were geared to the stable periods risked sudden obsolescence. Those who survived were likely to have prepared to adapt even if they could not be sure what adaptations would be required. Strategy, therefore, could not be based on a “focused line of attack—a clear statement of where, how and when to compete,” but instead on preparations to perform well in a variety of future environments. Small organizations with relatively few parts were unlikely to adapt as well as those with more parts and a larger repertoire of responses to new situations, but after a certain point the capacity to adapt would fall off as response times shortened. There was a new balance to be struck, between complete resistance to change on the one hand and oversensitivity to shifts in the environment on the other, between stasis and chaos.35
A strategy could never really be considered a settled product, a fixed reference point for all decision-making, but rather a continuing activity, with important moments of decision. Such moments could not settle matters once and for all but provided the basis for moving on until the next decision. In this respect, strategy was the basis for getting from one state of affairs to another, hopefully better, state of affairs. Economic models might find ways of describing this dynamic but were less helpful when it came to guidance on how to cope.
CHAPTER 34 The Sociological Challenge
I learned a great deal about military history and Confucian metaphors.
But the only practical advice that we were given was that every company
should send teams of people from different disciplines to country hotels
every year to think about the future.
—Participant in a fifteen-part course on business strategy given
by a leading name in the field, quoted by John Micklethwait
and Adrian Wooldridge.
WE NOW NEED to follow the second strand in management scholarship, drawn more from sociology than economics, which was inclined from the start to consider human beings as social actors and organizations as bundles of social relationships. Although this strand had a separate course, there were overlaps with the economic strand in the challenge to managerialism and in the propensity to follow fashion. It was influenced by the counterculture of the 1960s in two respects. The first was distaste for bureaucratic rigidity and hierarchy. This challenged the processes of rationalization and bureaucratization, arguing that a new and more enriching form of organization needed to be devised. The second was the influence of postmodernism, not only in the critique of the modernist forms of rationalist bureaucracy but also in offering a completely new way of considering human affairs.
The critical anti-managerialist literature of the 1950s presented a monolithic, homogenized dystopian vision, only one step short of George Orwell’s 1984. The elites of large corporations were described as presiding over armies of white-collar workers, formed in their own bland—and obedient—image. During the 1960s and 1970s, however, demographic trends and lifestyle choices worked against conformity. The new businesses based on information and communication technologies often seemed to celebrate relaxed workplace practices and freethinking rather than crude hierarchy. Moreover there was a better anthropological understanding of organizations, the complex social formations that developed within and between individual units, and the incentiv
es for individuals to develop practices that satisfied their needs as much as those of the organization for which they were supposed to be working.
The human relations school provided the foundations for this work, but it moved on after the war and turned into a rich field of organizational studies. Once organizations began to be viewed as social systems in their own right rather than as means to some management goal, questions arose not only about how this insight could lead to greater efficiency—which had been the concern of Elton Mayo and Chester Barnard—but how organizations could be arranged to make for a more fulfilling life for the workforce. This also fit in with a trend for individual pathologies to be explained by reference to their social settings. Structures that encouraged harmony, solidarity, and support should also therefore promote general well-being. An example of this was the book by the influential British social psychologist, James Brown, who after his experiences in the army and industry had concluded that mental illness was more of a social than a biological problem. He argued that organizations should be judged by their social as much as their technical and economic efficiency.1
Douglas McGregor’s The Human Side of Enterprise opened with the question, “What are your assumptions (implicit as well explicit) about the most effective way to manage people?”2 He offered two alternative theories. Under Theory X, which had developed with the factory shop floor, the presumption was that people disliked work and preferred direction rather than initiative, and so they must be controlled by means of threats and rewards. Under Theory Y, individuals wished for fulfillment and responsibility, and if offered the chance, they would commit themselves more thoroughly to the organization. He developed these ideas while on the staff at MIT and then had a chance to put them into practice as president of Antioch College. While he found support for his theory, the experience of coping with fractious students and faculty convinced him of the need for active leadership. He had believed, he later recalled, “that a leader could operate successfully as a kind of adviser to his organization. I thought I could avoid being a ‘boss’ … I hoped to duck the unpleasant necessity of making difficult decisions … I finally began to realize that a leader cannot avoid the exercise of authority any more than he can avoid responsibility for what happens to his organization.”3 He did not, however, reject his more humanistic approach to management or embrace authoritarianism. While critics might have worried that the dichotomy between Theory X and Theory Y was too sharp, and that actual practice would be contingent on circumstances, McGregor appeared as a champion of consent against coercion, the democratic against the autocratic, the active against the passive.
Herbert Simon’s ideas of bounded rationality encouraged a realistic assessment of how managers actually went about their business.4 Another organizational psychologist, Karl Weick, challenged standard models in his book The Social Psychology of Organizing by demonstrating how uncoordinated and apparently chaotic systems could nonetheless prove adaptable when faced with the unexpected—more so than systems geared to assumptions of linearity. Weick drew on a range of disciplines, and introduced into the lexicon concepts such as “loose-coupling” (a distance and lack of responsiveness between individual parts of an organization created a form of adaptability), “enactment” (how structures and events are brought into existence by individual actions), and “sensemaking” (the processes by which people give meaning to experiences). Sensemaking was necessary because individuals must operate in inherently uncertain and unpredictable environments (“equivocality”). There were a variety of ways individuals could make sense of things, and his work focused on the different forms communication could take within an organization, notably in the face of external shocks. Weick’s theories were, however, complex and did not offer the easiest read. His definition of an organization, for example, was “the resolving of equivocality in an enacted environment by means of interlocked behaviors in conditionally related processes.”5
Business Revolutionaries
The idea that management should focus on the softer side of organizational life came to be developed and promoted by two McKinsey analysts, Tom Peters and Robert Waterman. The starting point was the pressure felt by McKinsey’s in the late 1970s to come up with a credible response to Henderson’s Boston Consulting Group. Peters, who had recently returned from completing a Ph.D. at Stanford in organization theory, was asked to work on a project out of the San Francisco office that addressed “organization effectiveness” and “implementation issues.” At the time McKinsey’s was still working largely with Chandler’s concept of structure following strategy. At Stanford, Peters had been influenced by the work of Simon and Weick, both of whom challenged simple models of rational strategy formation and decision-making. He was joined by Waterman, who was also heavily influenced by Weick (“mesmerized,” according to Peters), and wanted to reshape the way McKinsey’s thought about organizations. One weekend with Tony Athos of the Harvard Business School and another McKinsey’s consultant, Richard Pascale, who had been working on the success of Japanese firms, they developed what came to be known as the “7-S framework.” Athos insisted—correctly, as it turned out—that any model had to be alliterative. A memorable shape was also required, in this case demonstrating, in contrast to the idea that strategy drives structure, that no a priori assumption could be made about which of the seven would make the difference at a particular time. The seven S’s were structure, strategy, systems, style, skills, staff, and the somewhat awkward “superordinate goals.”
The model was launched in a 1980 article. “At its most powerful and complex,” the authors suggested, “the framework forces us to concentrate on interactions and fit. The real energy required to re-direct an institution comes when all the variables in the model are aligned.”6
Athos and Pascale used the model specifically in a Japanese context. They argued that the Japanese scored on the softer side of management, by developing a sense of common purpose and culture in ways that American management had forgotten, if it had ever known.7 A translated book, originally published in 1975, by Kenichi Ohmae, who had been head of McKinsey’s Tokyo office, explained how strategy in Japan would not come from a large analytical department, fully formed in terms of rational, structured steps, but as something more ambiguous and intuitive, relying on a key figure with a grasp of the market whose ideas could be grasped in terms of the organization’s culture.8
The most important book to emerge using the model was Peters and Waterman’s In Search of Excellence.9 Their book was presented as an answer to a straightforward question: what makes an excellent company? Possible candidates were identified by what appeared to be a sophisticated methodology. Sixty-two companies that appeared fairly successful were evaluated according to six performance criteria. The forty-three truly successful companies were those that were above the fiftieth percentile in four of the six performance metrics for twenty consecutive years. These were then studied in more detail, with key executives being interviewed. Out of this they distilled eight shared keys to excellence: a bias for action, customer focus, entrepreneurship, productivity through people, value-oriented CEOs, sticking to the knitting (that is, do what you know well), keeping things simple and lean, and simultaneously centralized and decentralized (that is, tight centralized control combined with maximum individual autonomy).10
Twenty years after publication, Peters acknowledged that the research that had gone into the book had been unsystematic though he remained convinced by the message.11 The book was, he claimed, “an inflection point—a punctuation mark—that signaled the end of one era and the beginning of another.” The target was not so much the Japanese as the American management model. Peters described his motivation at the time and since as being “genuinely, deeply, sincerely, and passionately pissed off!” His targets included Peter Drucker, because he encouraged “hierarchy and command-and-control, top-down business operation” and organizations in which everyone knew their place, and Robert McNamara, besotted by systems at the Pentagon whic
h had led to people being “driven out of the equation.” A third target was Xerox Corporation, where he had worked as a consultant, which to Peters demonstrated all that was wrong with the modern corporation: “the bureaucracy, the great strategy that never got implemented, the slavish attention to numbers rather than to people, the reverence for MBAs.” He therefore saw the book as challenging “Management 101” based on Taylorism, reinforced by Drucker, and implemented by McNamara. He objected in particular to the bean-counting mentality focused entirely on numbers and finance. “The numerative, rationalist approach to management is right enough to be dangerously wrong, and it has arguably already led us astray.”12
Waterman provided a slightly different, although not contradictory, account. In an article he coauthored, published in 1999, claims were made about the role of the book in translating the key themes in organizational studies, to the point of describing it as an accessible version of Weick.13 They addressed the issue of whether it was possible to simplify without being simplistic. Even if the situation demanded complex theories, managers would not find them interesting and so good theory would not affect practice. The article claimed immodestly that In Search of Excellence succeeded by saying “pretty much everything there was to say about behavior in organizations and got it right, by virtue of the experts cited.” Ideas of learning organizations, bounded rationality, narratives, and agenda-setting could all be found, with key theorists getting mentioned. Yet a description of the key messages suggested a set of values as much as scholarly findings, for example that “it’s OK for guys to have feelings”; “don’t take yourself too seriously”; it’s “not your fault” if the world does not look neat and tidy; and “people who espouse rational models of decision-making want you to feel responsible for the disorder in the world, but don’t for a moment let them get away with that silliness.”
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