Making Great Strategy

Key Concepts

Developing rigorous logical arguments can help companies achieve better strategy

“Despite these differences, the challenges faced by Kelly, Earp, and Fields share a crucial element: achieving strategic success requires relying on a logical argument, unless they want to depend on luck. By argument, we mean a chain of reasoning by which a conclusion is drawn from a set of assumptions or premises. By logical argument, we mean an argument that passes the test of logic. We define logic as reasoning conducted or assessed according to strict principles of validity. As we illustrate later, validity in this usage means that the premises automatically imply the conclusion: the chain of reasoning makes sense and is logical.”

“But one underlying theme does indeed unite all sustainably successful strategies, a common truth that is as simple as it is insufficiently recognized. The success of any consistently winning organization’s strategy possesses a coherent logic, a logic that can be expressed as an argument, or what we call a strategy argument.”

“How does working with strategy arguments help in this situation? First, as in Kelly’s and Earp’s situations, clearly articulated arguments will help clarify what assumptions need to be tested and what the best performance indicators for each option are. Second, and more importantly for Fields, well-formed strategy arguments facilitate the process of comparing alternative strategic scenarios that might otherwise seem impossible to reconcile.”

“The advantages of this approach include:

“1. It allows executives to apply simple, universal principles for assessing the coherence of a given strategy.”

“2. Explicitly articulating a strategy argument allows executives to identify the critical capabilities, investments, and environmental uncertainties that will determine the success or failure of a given course of action. A leader with a clearly articulated, logically valid strategy argument can deliver on his or her twin responsibilities—driving execution and adapting to change—much more effectively than a leader solely in possession of a strategic vision. Resource allocation decisions become less contentious when everyone understands the strategy argument. The argument helps executives identify what has to be true for a strategy to succeed, such that they can monitor the performance of their strategy and change course if needed. Moreover, working to ensure the coherence of a particular strategy argument allows leaders to identify unstated or implicit assumptions in their strategies.”

“3. Recognizing that all strategies are arguments that can be evaluated according to objective criteria allows executive teams to adopt a more disciplined and less contentious approach to debating and making strategic decisions.”

“4. Coherent strategy arguments equip executives to make the most compelling case for a proposed course of (in)action and respond thoughtfully to objections.”

“Without constructive arguments among multiple stakeholders, strategy runs the risk of being disconnected from key parts of the organization and of being misunderstood. Strategy developed without the involvement and consultation of many parties can easily miss the mark and will prove difficult to execute.”

The authors recommend visualizing the logic in a strategy map

“Indeed, we advocate and use a special type of visual model we call a “strategy map” as the starting point for strategic analysis.3 As a concept, a map usually refers to an image of areas of land or other physical entities, but at its core a map is about visualizing the arrangement of places or objects or actions relative to one another. A strategy map shows the arrangement of strategic concepts and resources relative to one another; it also shows the direction in which cause-like forces proceed to generate organizational outcomes. A strategy map can then be used as the basis for building the more formal logical argument needed for a rigorous assessment.”

“The process can be done individually, but our experience suggests that it is easier (and more fun) when done in small groups where at least some members are well informed about the organization under scrutiny. The social element of visualizing collectively generates energy and allows people to bounce ideas off one another and to iterate rapidly. At the same time, a group visualization exercise needs to have some discipline and a sense of urgency, and should be conducted in different ways at different stages of the conceptualization.”

“Such disagreements are reasonable—and even to be expected—when comparing different hypothetical scenarios. But we hold zero doubt that these debates will be more productive when the people involved are clear about what they disagree about and have a structured way of identifying the precise reason for their disagreement. By visualizing a plausible strategy argument, the strategy map in figure 2.3 creates opportunities for people to recognize and express clearly how their own strategy argument differs.”

“THE BENEFITS OF FORMALIZING ARGUMENTS”

“First, note that some of the ideas you have put up on the mapping board are likely to be insufficiently complete.”

“Second, it can be difficult to assess the validity of an argument diagrammed as a map. If you have sketched out the map reasonably well, then you will have sketched out the basic structure of the argument. But for the argument to hold, it must be valid: the outcome or conclusion you expect must follow from the other ideas you are invoking and often assuming. If not, you need to revise the structure, perhaps adding additional ideas and assumptions. As we explain in this chapter, assessing validity is a technical matter of logic--it is often easier to assess when arguments are stated in propositional form.”

“For these reasons, we think it is helpful--once you are reasonably satisfied with your strategy map--to formalize the argument. In fact, we believe that if the formalization of your map does not yield a logically valid argument, you most likely do not have a great strategy. You will also probably find that many people inside your organization don’t know the strategy or are confused about it.”

“THE BENEFITS OF CONSTRUCTIVE ARGUMENTS”

“We call this phenomenon “arguing blue,” because it reminds us of the common expression about arguing until you are blue in the face. The unfortunate fact about how strategy happens in many firms is that it all too often takes the form of arguing blue. Being on the losing side of such fights is not good for one’s career. People try to avoid engaging with proposals they disagree with’ better to let sleeping dogs lie. As a consequence, not only do strategic issues rarely get debated, but arguing about strategy itself gets devalued. Rarely is arguing about strategy regarded as a serious or productive use of time. And in many corporations today, from very large global companies to tiny entrepreneurial start-ups, there is a strong sense that the thing to avoid, at all costs, is having an argument, especially about strategic decisions, where real resources are at stake.”

“Perhaps the most compelling reason to argue about strategy in groups, rather than develop arguments in isolation, arises from the well-established individual tendency toward confirmation bias.”

“A valuable function of a constructive argument is to help participants in the dialogue to see how others in the group see the situation. By respectfully engaging with one another’s ideas and arguments, participants begin to see alternatives to their own way of thinking--or indeed recognize that apparent differences are only superficial--and arrive at a common way of thinking.”

The Benefits of Arguing About an Uncertain Future”

“The primary advantage of approaching strategy formulation through the lens of argumentation is that doing so forces executives to surface and state their assumptions. Some might say that the biggest threat to effective strategy formulation is wishful thinking—wanting something to be true. We disagree. The greatest threat, in our view, is muddled thinking, especially when combined with wishful thinking.”

“In our view, strategy formulation should be primarily about the process of formulating a logical argument for how the firm will accomplish a desired goal. This process requires clearly articulating the goal and then spelling out a theory of how that goal will be reached. It requires moving from a gut instinct about what we want to be true to a rational argument that clarifies what is required to make it true—what needs to happen to make it true, either through developments in the external world or actions taken by the firm.”

“What is different, then, about assessing and formulating a logical strategy for the future, as opposed to analyzing a prior strategy? The answer is obvious, of course: the future hasn’t happened yet. Formulating a strategy for the future therefore requires more speculation, and less reliance on established facts. This act demands a specific focus on articulating in advance the conditions (premises or assumptions) that need to be true for the strategy to succeed. These conditions may not be true at the current moment; in fact, they often are not. Some of the conditions may come about because of intentional actions by the firm, but many of them will not; rather, they are external developments that need to occur. The value of formulating logical strategy arguments comes from surfacing the requirements for success, in being able to identify what needs to happen.”

“The Benefits of Effectively Communicating Strategy”

“The lesson for leaders is that the beautiful, well-reasoned strategy argument that they have crafted—through painstaking research and constructive, but difficult, debates and decisions—should not be hidden from view.”

“It means that, above all, the message should clearly convey the core logic by which the organization succeeds. Recognizing that there are a number of different ways to do this effectively, we believe that the best messages contain four elements:

“1. a concise description of the strategic opportunity;

“2. a forthright acknowledgment of the primary obstacles to success;

“3. an articulation of the logic by which the organization will overcome those obstacles; and

“4. a clear connection between the strategy and the organization’s actions.”

“Failing to acknowledge the obstacles to capturing value does not make them go away. Moreover, the audience for a strategy message—both internal and external—is often well aware that these obstacles exist, so there is little to be gained by sending a message that does not acknowledge the elephant in the room. Doing so suggests the leadership is out of touch with reality.”

“A strategy message should be accessible and comprehensible to all, which means it needs to be simple and direct.”

While visuals used for communication are likely to differ from the specific logic of the strategy map, they are useful

“Our emphasis in chapter 2 on the value of visualizing strategic issues leads us to naturally be sympathetic to the value of graphic representations of strategy. But visually arresting graphics can easily substitute for clear thinking and, most importantly, rarely are able to speak for themselves.”

“To be useful on its own, the strategy graphic needs to be self-explanatory—it needs to tell the viewer the basics of the strategy all by itself. And that is a tall order—perhaps too tall. A good test of a strategy graphic is to show it to a person who has never seen it before and who does not know much about the company in question. Then ask that person, “What is the strategy of this organization?” If he or she can’t tell you, then the graphic is not doing its job. In most cases, a graphic representation of the strategy should be a complement to a clear, written explanation of the strategy.”

Quotables

“As Gary Pisano notes, ‘Without a [well-articulated] strategy, every decision has to be debated.’”

“Without an argument, strategy is often vacuous, confused, or misdirected. In the worst case, strategy without an argument may involve cluelessly gambling the future of a company.”

“To put it bluntly: without reasoned analysis, neither vision nor discovery will lead to strategic success.”