Arkaro Insights

Is strategy definition still confused? and what might be the solution?

• Peter Compo • Episode 1

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"You would think that there would be alignment on what is strategy amongst experts and practitioners and so forth but despite how much is written about it, and how much is spent on it, there really isn’t that much alignment"

Today we are talking with Peter Compo, author of the new book, The Emergent Approach to Strategy

With a background in music, and a doctorate in Chemical Engineering from City College New York, Peter spent 25 years at E.I. DuPont in the US, where he held a wide range of leadership positions in marketing, supply chain, product, and business management. He left the company to work full-time on developing the Emergent Approach.  

Despite all that has been written on strategy confusion on the definition remains. Pete summarises the 75 definitions he has identified and propose a solution. 

To learn more see the Arkaro Insights article "What is the Definition of Strategy?" on www.arkaro.com and follow Arkaro on LinkedIn.  
 
 

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SPEAKER_00:

Hi, my name is Mark Blackwell, and welcome to the Arcaro Insights podcast series, where we help business-to-business executives deliver better results in their organizations. In each episode, we introduce you to one of our thought partners to bring you the latest ideas for change and innovation in your organization.

SPEAKER_01:

You would think that there would be alignment on what is strategy. among experts and practitioners and so forth, but despite how much is written about it and how much is spent on it, there really isn't that much alignment.

SPEAKER_00:

Today we are talking with Pete Compo, author of the new book, The Emergent Approach to Strategy. With a background in music and a doctorate in chemical engineering from City College, New York, Peter spent 25 years at DuPont in the US, where he held a range of leadership positions in marketing, supply chain, product and business management. He left the company to work full time on developing the emergent approach to strategy. In this episode, we're going to talk about why there is confusion in strategy. Hi, Pete. Welcome to the first episode of the Arcaro Insights podcast. It's great to have you here. Thanks for having me, Mark. I want to give you congratulations, first of all, on publishing The Emergent Approach to Strategy. We're going to have a couple of podcasts on this book. I, for one, know that you've taken a lot of time to get to the final point of publishing, so maybe you could let the listeners know a little bit about your journey from start to publication.

SPEAKER_01:

Sure. Yeah. Writing a book like this takes longer than you think. And maybe if you knew how long it would be and how much effort it would be, you might not do it. So maybe there's a silver lining there. Anyway, just a little history. I had always been very interested in the whole question of innovation and creativity. I came from a musical background and then I had a training in science and engineering. And then I went to work for DuPont for 25 years where I had a very diverse career in business management, but supply chain, product management, marketing, and so forth, operations planning. My interest in innovation and creativity kind of brought me to the question of strategy when I was in the corporate world. And I was a bit frustrated with what I learned about business strategy. I was frustrated with the theory. I was frustrated with all the divergence of opinion about it. And I was frustrated by practice and I learned quite quickly once I started doing research that DuPont was hardly alone in this issue. So I started working on developing theory and practice of strategy over many years and slowly it just accumulated and became a book.

SPEAKER_00:

Brilliant. And it's a great book, thanks. You know, it's really enjoyable. I mean, there's lots to note about the book, but straight on the get-go, as you get into the early chapters, you spend quite a lot of time defining strategy. You know, after all of this time, surely we all know what strategy is. What's the point in that? You would think

SPEAKER_01:

that there would be alignment on what is strategy amongst... experts and practitioners and so forth, but despite how much is written about it and how much is spent on it, there really isn't that much alignment. And I think it's a real issue because it impedes learning from each other, it impedes learning from experts, it impedes learning between subject areas. How does military inform business? How does business inform government and so forth? Without a common language and a common understanding, it's hard to achieve this.

SPEAKER_00:

I was struck. You've done a lot of research and you came up with something like 75 different definitions of strategy. Is that right?

SPEAKER_01:

I do list 75 different definitions that I've found in the literature. These are all online. You can find them there in a document. And yes, the opinions vary widely. Not just what people say strategy is, but the language they use to describe it. I would say, though, there's not 75 unique definitions that are used. I've boiled them down to eight, which I feel capture the majority of what people say and what they believe a definition of strategy is and what it means as a concept.

SPEAKER_00:

Interesting. Let's have a go, if we may, going through these eight and seeing if our listeners can identify with any of them, maybe. So let's kick off. What's the first?

SPEAKER_01:

The first I would lead off with is strategy. perhaps the most common, and that is the whole idea of plans. A strategy is a plan. And there's a few things put on with this. And the second would be a plan for what is big, long-term, and important, which would be the second definition. Plans, though, are Plans are future events. We say we need to do these things to achieve our objectives, to achieve our aspirations. But a future event isn't a strategy. A strategy has to guide taking actions and decisions that would lead to future events. So, yeah, and the second is that not just associated with plans, but sometimes people will just say strategy is whatever is big, long-term, and important. But strategy has to apply to all time horizons, not just the long-term. It's for short-term, it's for tomorrow, just as much as it is for five years from now. The third definition is related to plans, but it's the concept of a master plan. The big framework, what I call a framework, strategy framework. This is everything, your aspiration, your vision, your mission, your goals, your tactics, your metrics, values, scenarios, and plans, individual plans themselves. Sometimes this is called a strategy framework, sometimes a strategic plan, sometimes a master plan. And Kind of remarkably, the one component that is usually missing from these master plans is a strategy itself.

SPEAKER_00:

In the military, this is some Can I just hold you there? Yeah. So, I mean, I think we've all been there. You know, these huge documents that were once in big ring binders, but now perhaps more often 200 slides of PowerPoints that we sit through and we've got all the components about the perfect execution, but of course are instantly forgotten because they're just too big to consume. Is that the sort of thing you're referring to in the master plan?

SPEAKER_01:

Very much so. And I'm not... the only person who says, hey, this is a big problem. A 55-page, we'll be generous and say a 55-page PowerPoint deck with goals and aspirations and data and forecasts and beliefs and values and scenarios. That's not a strategy. That's a framework, a master plan. And Unfortunately, like I said, usually the one component missing in these large constructions is a strategy.

SPEAKER_00:

Well, you're right. And so there's another thing that comes to my mind when you say that. I'm thinking of the phrase that Mike Tyson adapted from the military. Everyone has a plan until they get punched in the face. There's a plan. but it doesn't tell you what to do once you get going into battle or into the boxing ring.

SPEAKER_01:

Yeah, well, that's... Yeah, and I'm not the first to say that, obviously, right? Many people have talked about this issue with plans, and this relates to the first definition we talked about, just the concept of a plan for achieving a result, meaning future actions that we have to take for a future result. And obviously... a strategy should last longer than the first contact with the enemy or in business, the first contact with reality or putting something out there. That's right.

SPEAKER_00:

Got it. Okay. So what else did you see as you're looking? Okay. So a

SPEAKER_01:

fourth definition actually comes from Michael Porter. And he's quoted often. And He wrote in his famous 1996 paper, What is Strategy? He wrote the characteristics, the requirements of a strategy. He said it has to be holistic. It has to create fit between the functions of the organization. He said it has to show what makes you unique and what gives you a unique proposition. And While I don't think hardly anyone argues with the message he gave in that groundbreaking paper, the problem is that you can't define strategy by its requirements. I make the analogy to an automobile engine. An automobile engine may have to be efficient and robust to bad weather and it may have to be low you know easy to manufacture but this doesn't define an automobile engine these requirements might apply to the air conditioner just the same in a in a car so we can't define a strategy by its requirements we can impose that these are good requirements to have and by the way in his paper he never once says a strategy is a fill in the blank. So that's...

SPEAKER_00:

Interesting, that's interesting observation.

SPEAKER_01:

Yeah, so that's the fourth, defining strategy by its characteristics that it needs to have.

SPEAKER_00:

And

SPEAKER_01:

the fifth? The fifth is related to a concept of making choices or just strategy as choices. And while a strategy is certainly a choice, a hard choice with tough trade-offs and all kinds of requirements as required by Porter and many others, everything is a choice though. Your aspiration is a choice. Your structure is a choice. Who are you gonna hire to do your IT is a choice. I mean, let's go on and on. So there's got to be something more than making a choice. to define a strategy itself.

SPEAKER_00:

I mean, I've been seduced by this idea of choice being a really good definition of strategy and find myself talking about it to others in my career. But one example which really helped me in your book, which is, you know, by extending that idea, you see the practice of strategy become little more than a multiple choice test.

SPEAKER_01:

Yes, absolutely. When strategy is defined as choices or the act of making choices, it's got a dangerous side to it because it can lead to people filling out the forms exercise. Here, we're making choices. Now, look, no real good strategist who says that a strategy is a set of choices or the act of making choices wants a filling out the form exercise and many of them will give very very deep reasons how to make choices but we have to be careful because not everybody will fight through all those choices and sometimes it's expedient to get the fill in the blanks done so That's another downside of defining strategy as choices. I think the other thing we have to recognize is that making a choice is not a lasting... Let me start again on that. A strategy has to be a statement. It has to be a tangible statement that gives guidance to the organization over time. An act of making a choice is not a statement. It's not a tangible concept. It's an action.

SPEAKER_00:

Got it. So what's number

SPEAKER_01:

six then? Number six is that you will find some people actually defining the strategy as the aspiration itself, as the overall goal, maybe the vision, maybe the mission. And obviously, a strategy is for achieving an aspiration, not the aspiration itself. But I think the much more common and the really damaging aspect of strategy as aspirations is this concept of strategy themes. Most people wouldn't say, My strategy is to grow 30% in new markets or something like this.

SPEAKER_00:

Hang on a minute. In the old days of the Soviet Union, it would be tractor production up 15% this

SPEAKER_01:

year. Okay, so we'll take some extreme cases. But that is true. Five-year plans, the most extreme. But I think what you really see a lot of In fact, I think it's very close to the third definition we talked about, the master plan. And that is this idea of lists and lists and lists of sub-goals under headings of strategy themes. And so my overall strategy is to grow and grow. you know, have a certain amount of profitability and blah, blah, blah. But now we'll bust that down to five strategy themes. Operational excellence. Okay, under operational excellence, we're going to reduce our asset footprint. We're going to reduce costs by 10%. We're going to adopt agile methods for improving quality systems. We're going... And so on. And then you might have one on the customer side, a theme on the customer side, net promoter score, and we're going to add new salespeople. And just under each category of doing business, we write a bunch of sub-goals. And the specificity of this and how everything seems to be covered is extremely seductive. But just breaking an aspiration down into its parts is not a strategy. And in fact, it's really damaging because there's no thought about the trade-offs. There's no thought about how all of these things interact. It's a huge

SPEAKER_00:

problem. to your point about interaction, what I've noticed is to make sure that the whole system is working, people try to ensure that every conceivable function, division, region, section, unit of the business is covered so that people can leave the room saying, hey, I know my little bit of the strategy. But of course, the longer you make the list... and so that everyone can see the right, the much more likely you've got mutual conflicts going on and not addressing trade-offs and therefore people pulling in different directions. Just an attempt to make sure that everyone feels that they've got something to do this year in the strategy.

SPEAKER_01:

I think that's right on. This is the whole problem. And in fact, you can describe it as everybody gets their bullet point. And then they can leave the room, oh, well, I've done it, I'm part of this now. And it's not that every part of the organization has to be covered. It's not that everyone in an organization, every subgroup, every function, needs to be part of the overall strategy and then have nested strategies underneath that. It's that you don't find a strategy by just granularizing goals. That's the problem because you don't see the trade-offs. There's no interaction. And this is why it's so seductive. Everything's up there. Yeah, that's right. Everything has to be covered, but that's not the way to do it. That's not the way to do it.

SPEAKER_00:

So we're closing down then. I'm hoping I'm going to find one that you like soon. Anyway, let's carry on.

SPEAKER_01:

Okay, we will. Well, we've only got two left. So number seven. Interesting. It's kind of like Porter to some extent in that Henry Mintzberg wrote a famous strategy book in the 90s called The Rise and Fall of Strategic Planning. And it was really a biting critique of of how people use our first definition plans and so forth to create strategy or create strategy out of plans. But he really showed how plans don't hold and how so often what actually happens and what people end up doing is much different from what was in the original quote strategy. And so what he did was to turn it around and define strategy as patterns. And he had many different types of patterns. Patterns of what people expected to do versus patterns of what actually happened. And many other details with various language, but I think the important point is that, number one, Mintzberg was so right on about saying, hey, wait a minute, enough with this planning the future, painting a picture of what's gonna happen because it doesn't work that way. But the problem is a strategy isn't a pattern. A strategy is for creating a pattern. And looking in the past and saying, well, this pattern did occur, is not the strategy itself. You might be able to figure out what was the strategy people were holding to that gave them that pattern, but the pattern itself is not the strategy. So again, like Porter, Mintzberg made this huge contribution, but he didn't end up giving us a definition of strategy that we could work with.

SPEAKER_00:

Great. So it's now the drum roll time, I sense. Surely this is going to be the one that is getting close to where we need to be.

SPEAKER_01:

So the eighth and the definition and concept of a strategy that really holds water is that of a rule and a special kind of rule. It's a rule that is designed, and in my language, to bust, to get around, to lessen, to decrease, to get rid of the bottleneck, the dominant bottleneck to achieving your aspiration. So a strategy is a special kind of rule, a central rule that applies to anything in the organization. And this definition was articulated almost in this form by Richard Rummel, who who I think really came very close to this. He actually saw this rule as just one part of an overall strategy. He was kind of thinking of it as a master plan, as a strategic plan or strategic framework, and that this rule was just one part of the strategy. But I go a step further and say, no, a strategic plan, a strategic framework in my language, yes, has aspirations, it has a diagnosis, a word that he uses extensively, it has plans, it has tactics, metrics, but it also has its most important component, the central strategy rule. And the central strategy rule stands alone as the definition of a strategy, a central rule to bust the bottleneck to aspirations.

SPEAKER_00:

And you talk as well in the book about the rule happening to have some requirements. Can you tell me something about these?

SPEAKER_01:

Yeah, well, I didn't actually just take this definition from Rommel. I found it by creating a model of complex adaptive systems and deriving it from that model. And this very simple model, which is shown in chapter three, it's an influence diagram model, a special kind of influence diagram, but a simple one, shows that a strategy needs to have three characteristics. Kind of in the spirit of Porter's characteristics, but much more fundamental. And those three characteristics are that a strategy rule has to be a free choice. You have to be free to impose the rule as opposed to, for example, an aspiration rule as we will grow 15% next year. No one is free to impose that they will grow 15%. A strategy rule, you have to be able to impose the rule. The second is it must provide real-time guidance to everyone in the organization. so that as you're walking down the road, as you're implementing, at any given time, you know how to stay within the strategy rule. And the third requirement is it must unify all actions and decisions in the organization.

SPEAKER_00:

So let's maybe just replay some of the ideas we discussed earlier in this podcast and attest them against these rules. So thinking about, let's go for maybe, we're going to increase sales by 15%. You touched on that one. So that's the order from above. But I, as a member of the organisation, I don't have free choice. When I go into work every day, What you're saying by free choice is all I can do is try to generate a sale or not. I can't hit the target to 15%. That's what you mean by free choice.

SPEAKER_01:

By free choice, yeah, maybe I can be a little more specific about that. Free choice means you are not allowed to choose a future event. Yeah, yeah.

SPEAKER_00:

And so talk about the 15% in terms of unifying. Surely some people would say, but doesn't that unify the organization and everyone's got to be behind 15% growth this year?

SPEAKER_01:

Well, this is a great pickup. Yes, the 15% does unify because it tells everybody this is our collective objective. The problem is it doesn't tell you how to do it. It doesn't give you the strategy for achieving the 15%. So in a way, we can't reuse that information to create the strategy itself.

SPEAKER_00:

So Pete, I'm getting it that if you're a business and you want to say, I want my business to grow 15% this year, that's not a strategy. It doesn't meet any of the three requirements. But let's imagine that we're in this business that's got an aspiration of wanting to grow its revenue this year by 15% by entering a new region. Can we work out what a strategy rule might look like? And I remember you made that very important phrase earlier on about the strategy must include busting a bottleneck to your aspiration. So with that basis, help us work through it.

SPEAKER_01:

Absolutely. Yeah. And before we do, let's just remind many people know or at least some people know, that grow 15% next year by entering a new region is probably not a strategy. But it's more likely they would say, okay, we've got to bust this overall aspiration into strategy themes. So we need sales to do their part and we need marketing to do their part. And we're going to create a bunch of sub goals that will add up to this growth of 15% and keep our costs down and blah, blah, blah, blah. And the argument is, no, you can't directly create a strategy by granularizing that goal. So how do you create a strategy rule instead that would give guidance to all these parts of the organization? And as you said, it all comes around to the bottleneck. So let's contrast the business that wants to grow in a region, but compare two different bottlenecks. So what if the bottleneck is no market presence? People don't know your company. People don't know your brand. People don't know your products. Well, the strategy for attacking that bottleneck would be much different than the strategy for a business that the problem is they don't have the right products. Maybe the product line is over-designed. Maybe it's a little under-designed. Maybe it's just wrong-designed. And until the product line gets tweaked or modified in some way, to some extent, there's no way to really succeed in the market. Now, if that's the bottleneck, it would be a completely different strategy.

SPEAKER_00:

Okay, let's try to take that. Yeah, let's take that then, Pete. So imagine you're the CEO and your team has recognized that the real bottleneck is not having the product line rather than not having the right awareness in the market as a brand.

SPEAKER_01:

So an impulse might be to say, well, our strategy is to create the right products. So everybody, go do it. And we'll create strategy themes for that and sub-goals. R&D, you're going to create the foundational technology. Product development, you're going to make the modifications. Manufacturing, you're going to do the trials and figure out how to make it. Supply chain, blah, blah, blah. Again, it's not digging deep enough. It's not diagnosing deep enough what the real issue is. And how many businesses are willing to just say, okay, we'll just add all this cost. We'll just add all this effort. We'll add these SKUs and we'll grow. I venture that many businesses are in a situation where they're unhappy with their existing market. It's not growing fast enough. It's probably losing margin. That it's not just a matter of throwing money at everything like that. And instead, there have to be some very, very hard decisions made and trade-offs made. So, for example, it might be that there's been too much customization. in the existing market, that to maintain share and to grow as much as they could grow, that they've done a lot of customization, that they've got a proliferation of SKUs, and it adds up to a lot of cost and a lot of management and a lot of resources. A strategy rule might be we are going to, we have segmented our customer applications into three groups, A, B, and C. And from now on, there will be no custom products or custom packages created or sold to the B and C segments. And you might have a tactical rule that goes along with that that says, if you think you need to make a case to give a B or C segment, the the resources for a special product customization. You have to make a case to the product manager and the product manager has authority to decide yea or nay. So this would be a central rule that would inform all parts of the organization about what can be worked on and what cannot be worked on. And the result of the rule would be now we're no longer going to put our resources into these B and C segments and we can put these resources into creating a product line and creating the ability to deliver to the new region.

SPEAKER_00:

And so let's go through your three requirements.

SPEAKER_01:

Let me add, Mark, just, and this is something I stress in the book, true strategies may not seem that exciting to people outside the business. or that painful to people outside the business. Oh, sure, we're going to rationalize. We're going to segment. We're going to rationalize. You know, it's textbook. I read it in a book. I can do that. But when it comes down to your customers that you've been with for a long time and your people, and you might have to swap out some people to get different skills and so forth, it's not so simple. And that often a real strategy may sound somewhat pedestrian to the outside, to an outside viewer. I think often maybe we hear strategies that were very successful and we get excited about the strategy because of the results it had. But if you had heard the strategy before the great results occurred, you might not be so excited about it.

SPEAKER_00:

Or the sleepless nights the management team had, because they realized there were some tough choices ahead of them and they felt that pain indeed. Yeah. It's not easy to let people go. It's not easy to let the customers that grew your business go. This is difficult in the real world stuff.

SPEAKER_01:

Yeah.

SPEAKER_00:

Yeah.

SPEAKER_01:

I mean, just for one little example, not such a little example, right? When Steve Jobs got back into Apple, he had to cut a lot of things and take it down to a very, very sparse product line. I'm not so sure everybody, when they heard that, jumped up and said, oh, well, there you go. This is going to lead to the new Apple and the iPhone and the iPod and so forth and so on. And it alone didn't lead to it, obviously, but it was a key strategy rule.

SPEAKER_00:

Exactly. So let's just go run one more time about the requirements and talk me through how your strategy rule will hit the three requirements to be effective in this case.

SPEAKER_01:

Yeah, yeah. No, it's very important. So require number one, free choice. A strategy must be a free choice, meaning that you've determined those segments that you are no longer going to serve is a choice you can make. Contrast that with grow 15%, which is not a choice you're free to make. Hey, look, if grow 15% were a choice you could make, why not grow 1500%? What the hell? And you know, I'll hear, well, of course, that's not realistic. Well, I don't know. Is 30% realistic? How about 50%? It's a game. No, it's not a free choice to do something and to have a future event occur. Not one that's meaningful, anyway. So the second one is real-time guidance. The fact that the AMB segments are no longer going to be served with custom products and packaging means is a real-time rule that you can know whether you're following that at any given time, long-term, short-term, today, right at this minute. And Unify, the third requirement, everybody in the company can know it and can adapt to that rule in their own particular circumstance. So now when sales says, hey, we need a product for so-and-so, manufacturing can push back and say, sorry, they're in group B, and we've told, and we've agreed, we're not making packages, new packages for group B.

SPEAKER_00:

Got it. And wow, as I look back on some of my career experiences, if you had that clarity in an organization, it would have been great.

SPEAKER_01:

You know, and again, many people would say, yeah, of course. But to get there and to create a rule that really does this for you is a whole different story.

SPEAKER_00:

I can imagine the obvious question is flowing this down. across the organisation from the business strategy so that we have more granularity and more detail in the supply chain, in operations and sales, marketing and product. But that's going to have to be for another day. As ever, Pete, this has been an absolutely fantastic session. Do it. I'll always love talking to you. Always get something new every time. And thank you for it. Look forward to the chance of inviting you back again sometime. But anyway, once again, thank you very much, Pete. It's been great. Thanks, Mark. Bye-bye. See you next time. Bye-bye. Thank you for listening to the Arcaro Insights Podcast. Whilst we put together the next episode, why not pop over to the Arcaro website, www.arcaro.com, or follow Arcaro on LinkedIn for the latest news.

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