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Insights for Executives

Strategy in Search of a Method

William G. Pietersen
Professor, The Practice of Management
Columbia Business School
© 2005
Strategy in Search of a Method
© William G. Pietersen, March 2005
Strategy in Search of a Method
William G. Pietersen
Professor, The Practice of Management
Columbia Business School

Companies create their futures through the strategies they pursue.

These strategies may be explicit or implicit; they may be developed in a
thoughtful, systematic way, or allowed to emerge haphazardly in a series
of random, ad hoc decisions made in response to daily pressures.

But in one way or another, the strategy a company follows – that is, the choices it makes—determines its
likely success. And in today’s fast-changing environment, the ability to generate breakthrough strategy,
and to do so not once but repeatedly, has become more important than ever.
Most executives would readily acknowledge these truths about the importance of strategy. It’s curious,
therefore, that few companies have devoted significant time or energy to considering the nature of strategy
or to examining their own method for developing strategy. Instead, many of them simply plunge directly
into strategy formulation. It’s as if the manager of an auto plant were to dump a load of parts onto the
factory floor and tell the workers, “Here, make some cars,” without defining a manufacturing process
with the end-product in mind.
In this paper, we’ll take a step back and consider the basic questions that companies need to confront:
• What is strategy?
• What is the role of strategy in an organization?
• What is the best method for creating strategy?

What is strategy?

Perhaps the best way to understand strategy is to consider why it is necessary. Strategy exists because Insights
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of the stark reality of limited resources, which forces organizations to make choices about how best to use Executives

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 those resources in the pursuit of competitive advantage. Strategy is simply the sum of a company’s choices
about where it will compete, how it will create superior value for its customers, and how it will generate
superior profits for itself.
Competition expresses itself through the interaction of choices in the marketplace. The best strategic
choices, well executed, will win the game.

What is the role of strategy in an organization?

In a world of limited resources, a company that tries to compete in every market with no specific
focus or direction will soon squander its resources and fall behind its competitors. Strategy’s central role
is to provide the focus and direction essential to successful competition.
Just as important, strategy also provides a platform for an organization’s leaders to engage the hearts and
minds of employees in pursuit of a winning way. Thus, strategy and leadership are essential parts of each
other. No leader can lead successfully without a clear and compelling strategy; and no strategy, however
brilliant, can produce results without effective leadership. The unifying concept that expresses this essential
synergy is “strategic leadership.”
On the other hand, although strategy and planning are often combined under the rubric of “strategic
planning,” they are totally different things. Strategy is mainly about ideas, while planning is mainly about
numbers, budgets, and logistics. Strategy defines where to lay the railroad tracks, while planning is about
making the trains run on time. Both are essential, but combining them in one process is a toxic mixture.
The golden rule is: strategy first, and planning afterwards, with separate and robust processes for each.

What is the best method for creating strategy?

Now that we have clarified the nature of strategy and its role in the organization, the crucial question
becomes: How can we create brilliant strategies for our company? Which method should we choose?
This is no easy decision. There are a bewildering number of gurus, consultants, and writers, each with
a strongly held view on how strategy should be created. Which one is right?
The truth is that there is no silver bullet. Each approach to strategy creation has its advantages and
disadvantages. Corporate leaders must decide for themselves which method is best for their organization.
But there are sound principles we can use to make that choice. Here are the four criteria I suggest for
choosing a strategy approach:
• Is it compelling in terms of cold business logic?
• Is it simple enough for everyone to understand and embrace?
Insights • Is it designed to produce the right outputs?
for
Executives • Does it offer practical tools to get the job done?

2 © William G. Pietersen
 With these criteria in mind, let’s consider the different methods that are available to us. Broadly
speaking, there are four main schools of thought regarding strategy creation:
• The Resources School
• The Innovation School
• The Positioning School
• The Learning Organization School

Each school is based on its own set of underlying assumptions about what matters most, which in
turn drives a particular set of beliefs about strategy development. The four schools share certain assump-
tions and beliefs; many of the differences among them are matters of emphasis. But this is not a trivial
distinction; many of our biggest decisions are determining what’s important.
Before reviewing each of these approaches, let me declare that I am no agnostic; I have a point of
view about which method of strategy development works best. My aim is to describe the alternatives as
objectively as possible, so that readers can form their own judgments. And then, in conclusion, I will
offer my own point of view.

1. The Resources School

The underlying argument of this approach, perhaps best formulated by C. K. Prahalad of the
University of Michigan School of Business in his book Competing For the Future (co-authored with Gary
Hamel), is that each company has a singular set of resources (often called core competencies) that differ-
entiates it from its competitors, just as a champion tennis player has a set of killer strokes in his arsenal.
In this view, the key to success is for a company to discover these core competencies (by answering the
question “what are we best at?”) and then leverage them across the organization to seize and maintain
competitive advantage. If a company keeps improving its unique skills and embeds them deeply in the
organization, competitors will find them increasingly hard to copy.
Here are examples of well-known companies and the core competencies that have helped make
them successful:

Company Core Competency

Samsung Miniaturization
Toyota Product quality
Avon Direct selling
Wal-Mart Supply chain management

Strengths. The Resources school recognizes the power of aligning the entire business system (including Insights
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the corporate culture) behind a winning formula. It works wonderfully well so long as there is a good fit Executives

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 between the core competencies and the requirements of the external environment. If your core competency
produces a result highly valued by your target customers, a strategy based on leveraging that competency
is likely to succeed.
Limitations. The Resources approach to strategy tends to encourage inside-out thinking (“What are we
best at?”) rather than outside-in thinking (“What do our customers need?” “What are our competitors
offering?”). The danger is that such thinking may lead to a static view of the world in which critical shifts
in the environment are ignored, even as they render a company’s strategy obsolete.

2. The Innovation School

This approach, advocated by authors like Tom Peters (Thriving on Chaos) and Gary Hamel in his
more recent work (Leading the Revolution), focuses on the dilemma faced by organizations, which tend to
lapse into bureaucracy and inertia—what scientists call homeostasis. The result is fixed mental models,
an inward focus, institutional resistance to change, and a gradual loss of innovative capacity. All are
strategically debilitating.
As Peters and Hamel point out, most innovations come from newcomers, not established players.
For example:

Established Firms Strategic Innovators

Xerox Canon
Compaq Dell
Sears Wal-Mart
Traditional watch companies Swatch Watch

In each case, the newcomers drove the established firms into extreme financial distress or even
bankruptcy. Such reversals are becoming increasingly common: The average tenure of companies on the
S&P 500 has dropped from 65 years in 1930 to just ten years today. Of course, there are exceptions;
Procter & Gamble, GE and Disney, for instance, have successfully navigated change over an extended
period. But the overall statistics represent a call to action for established companies: Innovate or die.

Strengths. There’s no doubt that innovative capability is a crucial key to long-term survival. A
strategy approach that emphasizes innovation will instill the organization with a sense of urgency and an
openness to change, both positive traits.
Limitations. On the other hand, the single-minded focus on innovation alone—the relentless pur-
suit of the new—may divert attention from winning the existing game. As Mike Tushman of the
Insights Harvard Business School puts it, companies must be “ambidextrous,” simultaneously focusing both on
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Executives innovation and on operational excellence, involving continuous improvement of current processes.

4 © William G. Pietersen
3. The Positioning School

The leading proponent of this approach is Michael Porter, a professor at Harvard Business School, and
author of the landmark book, Competitive Strategy. Porter argues that earning superior return on investments
(which he considers the chief goal of any company) requires a sustainable competitive advantage—a way
of providing value to customers unmatched by competitors.
To capture sustainable competitive advantage, the argument goes, a company needs to establish a
favorable positioning within its industry. Here are some examples of companies that have established
different but profitable positions in the same industry:

Gillette: High quality re-usable razors and blades

Bic: Cheap disposable razors
Southwest Airlines: Low cost, no frills, point-to-point flights for budget conscious travelers
Singapore Airlines: A superior air travel experience with the finest food, comfort and service available

Porter advocates using the so-called Five Forces Model as a method of industry analysis to help find
profitable positioning opportunities. This involves assessing:
• The bargaining power of buyers
• The bargaining power of suppliers
• The level of rivalry amongst existing competitors
• The threat of substitutes
• The barriers to entry

Strengths. The strengths of this approach include its focus on capturing competitive advantage and
its analytical rigor, drawing on Porter’s background as an industrial economist.
Limitations. Its shortcomings are that it is a somewhat static model, focusing on a snapshot of the
industry rather than a dynamic analysis that reveals underlying trends, changes, and patterns. Furthermore,
it focuses mainly on industry attractiveness rather than in-depth analysis of customer needs.

4. The Learning Organization School

Champions of this approach include scholars such as Peter Senge (The Fifth Discipline), David Garvin
(Learning in Action), and Arie de Geus (The Living Company). Recognizing the failure of much traditional
strategic planning, these theorists have been exploring ways to forge a more vital connection between
corporate thinking and corporate action. The logic they put forward is essentially Darwinian: Long-term
survival is based on an organization’s ability to adapt continuously to a changing environment, and Insights
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successful adaptation in turn is dependent on effective learning. Executives

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 This vital link between learning and adaptation has given rise to a body of thinking on how to create
a learning organization with an enhanced ability to generate, capture, and share knowledge. In essence,
the argument of this school is that organizations must learn their way to success, as crystallized by Arie
de Geus in his now-famous statement that “in future, an organization’s ability to learn faster than its
competitors may be its only sustainable competitive advantage.”
Examples of companies that have successfully pursued this philosophy are:

Shell Company: Perfected scenario planning as a way of dealing with uncertainty

Buckman Laboratories: Created advanced knowledge-sharing systems to disseminate
best practices throughout the company
Cisco Systems: Established a deliberate process for learning from customers, engineers
and suppliers to guide its product development programs

Strengths. The identification of adaptiveness as the necessary condition for long-term survival and
the linkage between adaptation and the ability of an organization to learn effectively are both persuasive.
Limitations. This approach often positions learning in an open-ended, generalized way, almost as an
end in itself, as if learning by itself will result in adaptiveness. This leaves out the essential step that
unlocks learning’s value: the hard work of turning learning into breakthrough strategy.

Which approach is best?

As promised, I now offer my own point of view. Each of these approaches has advantages to offer,
but none will work long term unless organizations have an effective process to modify their strategies in
response to the changing environment. Getting stuck in one place, physically and psychologically, is the
greatest danger. Thus, the Learning Organization approach offers the most compelling theory of success.
As the learning theorists suggest, adaptiveness is the necessary and sufficient condition for long-term
success, and this is driven by the right kind of learning.
However, we need to take this thinking a step further. It is not learning for its own sake, but learning
strategically that is the source of successful adaptation.
Here, then, are my key conclusions:
1) Sustainable competitive advantage does not take the form of a particular product,
service, or strategy. Rather, it is the organizational capability to be adaptive.
2) It follows then that the central role of strategy must be to help executives create and
lead adaptive enterprises. We need to reinvent strategy to serve this purpose.
3) Work gets done in organizations through business processes. Thus, the missing piece in
Insights the Learning Organization approach is a practical process to deliver the right strategic outputs.
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6 © William G. Pietersen
Strategic Learning

A leadership process I call Strategic Learning aims to offer such a practical, systematic method. It
postulates that an adaptive enterprise is one that continually scans and interprets its changing environment
and its own realities. Acting on those insights, the organization defines its strategic choices and modifies
those choices as circumstances change.
The Strategic Learning process is based on what I call the “killer competencies” of adaptive organizations.
These are:
1) Insight: Powerful tools to generate a superior understanding of the
changing environment and the firm’s own realities
2) Focus: A robust process to translate these insights into the best choices
on where to compete and how to win
3) Alignment: Effective practices to align and energize the entire
organization behind the chosen strategy
4) Execution: Rigorous disciplines for executing better and faster than competitors
5) Renewal: A dynamic process for doing these things repeatedly,
thus creating a cycle of ongoing renewal
The first four steps of the Strategic Learning process create specific outputs. The fifth ensures that the
process is dynamic. These five steps are converted into a practical leadership process through the Strategic
Learning Cycle shown below.

Strategic Learning: The Leadership Process

Conduct
Situation Analysis Insights, Risks &
Learning Loop Opportunities,
Alternatives
Learn

Implement Execute Focus Define Strategic

& Experiment Choices & Vision
Align

Winning
Action Plan Measures & Rewards Proposition,
Structure & Priorities & Gaps
People
Process
Culture

It is not enough to do some of these things all the time, or all of them some of the time. The entire
cycle needs to be ingrained in the organization through repetition and practice. When this happens, the
killer competencies will create an ever-improving organizational capability which will serve as the main Insights
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source of sustainable competitive advantage. Executives

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 What’s unique about Strategic Learning? I believe the alternative approaches are not so much wrong
as incomplete. Embedding a specific competency is a choice; pursuing a particular innovation is a choice;
and adopting a defined position in the market is a choice. In specific circumstances, each may be a valid,
even necessary choice. However, defining choices is not the starting point of the strategy-creation
process, but rather its outcome. The challenge, after all, is not just making choices, but making the most
intelligent choices. The most intelligent choices will be those that are driven by superior insights.
Therefore, the Strategic Learning process insists on two crucial disciplines. First, the strategy process
must always start with a Situation Analysis to generate insights about the external environment and the
organization’s own realities. The Situation Analysis is the “engine room” of strategy creation, and is
designed to reveal patterns and trends, not just snapshots of current truths.
Second, in our dynamic competitive environment, it’s essential that the process be cyclical and self-
renewing, not static. As military experts emphasize, strategy must be a process of continuous assessment
and reassessment.
Strategic Learning has become the core methodology for teaching strategy in Columbia Business
School’s Executive Education programs, and the process is being successfully applied by numerous
companies around the world. It’s no silver bullet, but I would argue that it meets the criteria listed early
in this paper. Most important, it has been shown to work in practice.
Of course, Strategic Learning has its own limitations. The greatest of these is that it's time consum-
ing. Generating insights is hard, messy, and sometimes frustrating work (although it becomes faster and
more efficient as firms master the process through repetition). It demands a real commitment to carve
out time on the corporate calendar to get away from the urgent and think about the important.
Furthermore, it requires that strategy and leadership work hand in hand. Top leadership must model
the behavior of searching for truth, confronting reality, and making tough choices when necessary. A
process alone is not enough. This takes courage.

It all begins with insight

One traditional view of strategy which has informed much thinking on the subject defines strategy as
dealing with the relationship among ends, ways, and means. Unfortunately, this formulation suffers from a
serious omission—it leaves out insight, which is arguably the most important element of all. It is the quality
of the insights that determines the quality of the other three variables. Thus, the correct formulation
contains four elements: insights, ends, ways, and means.
In our increasingly complex environment, it is the battle for superior insight where the competition
really begins. In today’s business wars, this is increasingly the decisive battleground.

Insights You can learn more about Strategic Learning in Willie Pietersen’s book, Reinventing Strategy
for
Executives (John Wiley & Sons, 2002), or by consulting his website [Link].

8 © William G. Pietersen
Strategy in Search of a Method
© William G. Pietersen, March 2005
Columbia Insights for Executives

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