Theory of Strategy

strategic confusion

When no motive is defined, one is suspended in a strategic vacuum. People seem to spend a lot of time there. In a strategic vacuum, they are reduced to making crucial decisions on a whim.

Having one, and only one, clearly defined motive gives you strategic focus. Everything you do (or choose not to do) should be conducive to fulfilling your motive. Strategic focus offers the best chances of success.

Multiple motives lead to strategic confusion. A tactic may be employed because it is conducive to one motive, but then turns out to be detrimental to another motive. Strategic confusion seriously impedes the chance of success.

cleaning up Washington

Government programs have a reputation of failing, or even of being counter-productive. Therefore, the occasional call for some successful CEO to "clean up Washington" should come as no surprise. There are many ways to look at this government inefficiency. But here, we will treat it as a problem of strategic confusion.

By definition, politicians can not pursue a singular motive. They must take many motives into account:

• to placate the general electorate,
• to placate particular constituents and special interests,
• to appear fair and honest,
• to work within the law,
• to get positive coverage in the media,
• to work with foreign governments, NGOs and supra-national institutions.

Strategic confusion is simply a part of the political playing field.

strategic focus

When business is well-conducted, it has strategic focus. Heinz, the makers of tomato ketchup, are famous for doing only one thing, but doing that very well. When attempting to restructure a company, turn-around managers sell off those parts of a company that are not core business. Perhaps unknowingly, they attempt to move from strategic confusion to strategic focus.

There is thus little hope that a businessman could clean up Washington. Strategic confusion comes with the political territory. Even the best CEO could not bring strategic focus to government.

developing tactics

Strategy starts with identifying your ultimate motive. This is difficult enough. But having done so, you still need to develop the right tactics. That may be even harder. The essential problem is to predict which tactics will achieve your motive. But predicting the future is a notoriously hard job.

In The Art of the Long View, Peter Schwartz espouses a theory that a set of scenarios should be developed by a group of decision-makers. It is doubtful that Napoleon did this. One would think that a 'getting drawn into the Russian hinterland scenario' would have been among them. But modern corporations do develop future-scenarios. Shell Oil is famous for its scenario of the oil crisis, developed before the crisis actually happened in 1973.

Schwartz's scenarios do not predict the future. But they do frame it. This may work for large corporations. But to me this seems too elaborate to be applicable to the personal decisions that everyday life requires. Still, certain scenarios need to be considered, even for personal decisions.

success-scenarios

It seems that of all possible scenarios, success-scenarios come naturally to people. Napoleon must have had a success-scenario in mind when he invaded Russia. That scenario would have run something like:

• meet the Russian army in pitched battle,
• soundly defeat them,
• put a puppet on the throne,
• rule Russia through the puppet and
• restore the Continental System.

Likewise, the management of a start-up company is never at a loss for their success-scenario. How the customers will line up just to buy their new product!

fail-scenarios

On the other hand, fail-scenarios do not come naturally. But fail-scenarios are of great practical importance. So a conscious effort must be made to develop them. A fail-scenario follows simply from asking what happens when a tactics fails. Bankruptcy is an obvious, but oft overlooked, fail-scenario for a start-up company.

Fail-scenarios are never good. But sometimes, the consequences of failure are so bad that they are unsustainable. In this case, failure threatens the very survival of the venture (or of the venturer). These scenarios we will call disaster-scenarios.

disaster-scenarios

To see the difference between a fail-scenario and a disaster-scenario, consider a venture capital fund. 75% of the investments are expected to go bankrupt. The other 25% will reap great rewards. Bankruptcy of a company is never good, but for the fund it is just a fail-scenario.

Now, consider that you invest your life-savings in your own company. On top of that, you need to sign for a big loan. In this case, bankruptcy is not just a fail-scenario. It is a disaster-scenario, because it will draw you and your family down with the company. You can not sustain the consequences of a disaster-scenario.

The distinction between a fail-scenario and a disaster-scenario is crucial. It is defensible, and may even be necessary, to accept the risk of a fail-scenario in your choice of tactics. However, it is inexcusable to open up the possibility of a disaster-scenario.

Napoleon would agree. By going all-in on his Russian campaign, he opened up a disaster-scenario. And when his campaign ended in defeat, Napoleon found that he could not sustain the consequences.

a Theory of Strategy

A practical approach to strategy is:

• define your motive,
• identify tactics,
• develop fail-scenarios,
• evaluate the sustainability,
• decide upon implementing the tactic.

Be aware that a Theory of Strategy is just that: a theory. It can be hard to apply because the world is complex and ever-changing. Below are some of the challenges of fitting the real world into our strategic theory.

Also, this is a one-sided approach to strategy. It is concerned only with your motives and tactics. But other players have motives too. We will deal with that later.