The Evolution of Business Strategy

By Dr. Richard W. Oliver

What is "strategy?" What is "strategic planning?" Like art, we know it when we see it, but it's not always easy to describe and define. One time-honored way to come to grips with a difficult concept such as strategy is to think in terms of metaphors. Business strategy has taken many forms over the past century. Here are a few that help us come to terms with how to run an organization.

Strategy as War 

The word "strategy" is derived from the Greek word strategia, meaning "generalship." For early commercial enterprises that moved beyond the family firm, business approaches often mirrored those of the military. The command and control models Army generals used moved easily into business practice with little alteration.  Company heads commanded the troops while winning battles through sheer force (superior resources), because they had an impenetrable fortress (a protected market or monopoly), or via guerrilla warfare (going after competitors when they're not expecting it).

Some of these thematic elements still exist today. Many top executives regard Sun Tzu's The Art of War, written more than 2000 years ago, as required reading. The command and control model was pervasive until the dawn of antitrust legislation at the turn of the century, and its lifecycle was extended by the Great Depression. Keeping workers happy or motivated was rarely a consideration, and companies were much more likely to dictate to customers what they could buy than to listen to what buyers wanted. Strategy was primarily centered on winning the war by eliminating competitors.

Strategy as Machine

World War II demonstrated that the winner was the one with the better "industrial machine." Thus, the war metaphor gave way to a view of strategy as essentially an industrial process that, just like a factory, was largely mechanized. The prescribed approaches to strategy seemed to suggest (just as with a machine), "If you press this button or pull this lever, then such and such will happen."

With its new emphasis on mechanistic processes, the idea of strategic planning drew more attention in academic circles through the 1960s. Major corporations created strategic planning staffs and began to implement systematic planning processes. For the first time, strategy became a business process that was seen as manageable, in the same manner as other elements of the business. Many of today's key terms and tools-as well as a number of strategy consulting firms-were developed during this period. Courses on strategic planning began to enter the business school curriculum in a limited fashion.

However, just as enhanced communication and global planning permanently changed the nature of warfare, these factors also affected the nature of business. By the late 1960s, business had become more international, more complex, and more sophisticated as firms rushed to reinvent themselves and grab global market share. Firms realized that there was a "web" of interrelated stakeholders who directly affected success. What was needed, then, was a new metaphor.

Strategy as Network

The global shocks of the 1970s illustrated the importance of flexibility, non-linear thinking (i.e., strategy was not simply an extension of current trends), and rapid communication in strategic thinking. Many companies burdened with a rigid planning process-or no planning process at all-suffered devastating consequences at the hands of escalating oil prices, war, government instability, and increasing global competition.

The 1980s saw the rise of Japan and its consequent effect on strategic planning theory and practice. The rapid advances in technology also had a dramatic effect, with the humble bar code turning inventory management upside down and the rise of ERP computer systems allowing managers to track widespread geographic activity in real time. Harvard professor and strategy guru Michael Porter wrote his most important works during this period and shaped several generations of academic and practitioner thinking about strategy.

As the personal computer and advanced robotics became more widespread, productivity increased, and managers gained a wider view of operations than ever before. The 1980s were a golden time in the history of strategy: The decade witnessed the start of global planning processes, corporate reengineering, the "information-based organization," and recognition of the employee as a key resource.

The 1990s were a boom time for the United States, which sealed its role as the dominant world leader. Strategic thinking was affected by the rise of the Internet, accelerating advances in technology of all kinds, and a striving for efficiency and low-cost production, putting the focus on a firm's ability to "add and migrate value." Strategic planning and continual revision became entrenched as a vital core of the corporation.

Strategy as Biology

Perhaps the most important change in strategic thinking in this period, though, was the recognition of the critical role customers played and their intimate relationship with the "ecology" of the firm. With few exceptions (e.g., government-dictated monopolies) the customer has always been the final arbitrator of corporate strategic success, particularly over the long term.

However, as a result of the proliferation of information technologies during the late 1990s, the customer role in strategy formulation became more immediate and instantly powerful, influencing the life of the firm just as a living organism interacts with its environment. This strong and continuous interaction of a firm with its environment (particularly its customers) begs for a new metaphor.

Strategy Today

What is strategy today if the CEO is the DNA of a firm rather than the ultimate manager pushing buttons or leading a platoon? If innovation and change are being created as a natural and intimate part of a constantly mutating organism?

This is where many definitions of strategy fail. Most definitions are written by academics for other academics and their students, or, at best, by consultants for their CEO/CFO/Chairman clients, and most fail to capture the currents of change in business.

The dismal state of the world economy in the first few years of new millennium, and the unpredictable result of the terrorist assault on U.S. economic and business institutions on 9/11/01, make judgments about the state of strategy today even more difficult.

However, strategy is the process of understanding the industry (its ecology) and the firm's position in that industry (its genetic makeup). It involves understanding whether the firm can either improve the structure of its industry or improve its position within the industry (either a revolutionary or evolutionary path.)

It asks the question: can the firm be better than average in its current industry (get beyond its DNA)?  If not, it must change the structure of the industry or place itself in another industry where it can be dominant (mutate or die).

So what is strategy anyway?

For me, "strategy" is understanding an industry structure and dynamics, determining the organization's relative position in that industry, and taking action to either change the industry's structure or the organization's position to improve organizational results.

The view changes over time, but in the end we always need to figure out how to do a better job and beat the competition.

Links:

 Richard W. Oliver's Bio

A Publication of American Sentinel University