Business Strategy, Asymmetries, and the return of the humble tinkerer

Strategy, a word that was not associated to business until late 60’s and that really originally belongs to military academies. In its original sense it meant that generals needed to plan the course of the engagement in battle, with little information about the enemy, slow communication with its troops, and with very little chance for changing the preferred course as more information was available. Military commanders lived or die for small differences in decisions, use of new tactics, or the sometimes better weapon unknown by the enemy.

As years, wars, and technology development went by, it was clear that the issue of little information, communication and flexibility of change was not going to be the same anymore. Military strategy quickly evolved to a constant feedback loop of small-scale experiments -to test and learn tactics- and them apply these learnings at a bigger scale towards enemy combat. The issue was not having the right course or strategy defined from the get go. It was to develop a system to choose the best options among the ones presented in a constant flux of information, where finding the signal (the pattern or aspect to pay attention to) was becoming harder, not easier, in the deluge of data about the enemy, its operations and the imminence or possibility of an attack.

So, military strategy went from top down (defined upfront), to a more on the ground decision-making driven by relevant information of the moment, and experimentation in real time. An interesting example of this is the IDF (Israeli Defence Forces), approach. They are known for giving their soldiers (to the lowest rank and up), a level of independence in battle that doesn’t require formal approval -to a extent- from general commanders in the detailed ways enemy engagement will be conducted. Experimentation in war is encouraged, and selection of best individuals is largely done on the basis of their abilities to carry initiatives on their own, and still maintain the cohesion of the group. Discipline (key in military doctrine) evolved from its usual -follow orders- definition, to one where the highest discipline required is in the consistent method for choosing options in battle. Officers as well as soldiers are required to go along with commands more general in nature, military generals and supreme commanders benefit from creativity, and diversity of solutions the new level of operation entails. It also limits errors to a small scale, and let them test approaches to battle in quick succession, that might as well, prove key for winning the overall conflict (it has for the IDF so far).

To be fair to other armies, the IDF and the US benefited (if you can say that) from having formidable enemies in regards to quick deployment of attacks, and distributed command. Guerrilla warfare (and its Terrorism cousin) -in a weird way- meant facing an enemy acting in small groups and with no clear head to attack. That forced State professional armies to evolve and adopt a model that could give them a chance at defeating them. Vietnam & Iraq wars, and the initial stages of the Yom Kippur Arab attack, demonstrated the vulnerabilities of -in theory- superior armies against a more flexible, independent and quick to react enemy.

So, to wrap up from the military side:
a) Strategy has evolved with the times, technology and availability of information,
b) From an imposed by circumstances classic top-down approach, it has embraced the possibilities of bottom up discovery of the best solution (strategy as well, but maybe in a different sense), benefiting from small groups errors, and try outs (experiments), and reducing the gap in flexibility against its enemies, and
c) Big armies like the IDF and USA (to a extent), benefited from having to defeat enemies with a higher degree of flexibility in their command and distributed efforts (asymmetric war fighting).

And then on the business side.

Only in the sixties, a movement led by Ansoff, Drucker and later Porter, started to provide more tools to justify the teaching of what was called the “science of management”. The term -originated by Frederick W. Taylor- was largely bruised by then. From a legitimate raft of criticism in regards to its shortcomings to represent the human side of business, and the external environment where it operated. Also from the little scientific basis it claimed to have, but really couldn’t demonstrate. Ivy League Universities were keen to give science status to management theory, as a form of legitimizing the new aristocracy of CEO’s with an status of social science. Theorists flourished, and there was really little concern in coming up with something really scientific in nature.

In the seventies and eighties, the new science was converted into a “product” to be sold by management consultants. The product consisted basically to tell managers of corporations that an MBA graduate with no experience in their business could come up with a “strategy” -using strategic planning tools- that they couldn’t (I guess more from not seen practical value in them than any intellectual limitations), and many saw McKinsey and other new consultancies as bringing the higher truth to them (consulting really took off as a multi-billion dollar business in this period).

From the eighties and even nineties, the world of management was just catching up with their still very new jargon: 5 forces, Ansoff’s matrix, BCG matrix, core competence, RBV, co-opetition and others. External environment was still largely booming, and changes were quicker than before but only slightly so (didn’t have the benefit of hindsight at the time). Something new coming, “The Internet” would come and accelerate changes in a dramatic fashion. New entrepreneurs and individuals -powered by the internet- were for the first time (in many centuries) allowed to sell and purchase products and services at a global scale.

Asymmetries start to impact the business world.

Individually, small units didn’t pose a threat to established businesses, but put together they were quickly eroding the traditional multinational corporations market, and exposing the flaws on its ways of developing and executing strategy. In a way, you can call this “asymmetric competition” and corporations yet still don’t have any new theories to throw at this problem (neither Harvard). As before, they have a long way of learning ahead of them to catch up with what the military world have done -to some extent- already.

No wonder Israeli founders of tech startups have a very good reputation (with track record), and mostly come from elite military units in the IDF (well, pretty much everyone in Israel in some way is connected to the military). Israel is the highest contributor per-capita of venture capital, innovation, and new business creation in the world. At a certain point there were more new Israeli companies listed in the US, than new listings (IPO’s) from China, quite an asymmetry in itself. However, lets not confuse this success with the military background. The real success factor comes from a prolonged exposure, and practice, in a methodology of choosing options that distributes risk in small decisions and allows the individual to bring the best of their creative solutions.

New theoretical frameworks for “strategy” discovery are becoming more and more difficult to ignore in large corporations. In the startup world, Customer Development (Steve Blank, an ex US air-force himself), and Lean Startup (Eric Ries following on the same), have cobbled together the leading guiding framework for early ventures direction. With its maxim “a startup is not a small version of a big company”, you can guess how different its advice is from the almost Soviet like approach of Porter, Ansoff, and Drucker (with F.W.Taylor lurking in there as well).

To wrap up from the business side:
a) Corporations borrowed classic military strategy frameworks for the development of their ‘scientific’ approach in a top down fashion,
b) Consultants and CEO’s campaigned for the widespread approach of this frameworks in big corporations, with very little positive results and at great cost in time, money and real learnings,
c) The internet and other technologies have created an asymmetric competitive landscape. Exposing the flaws of the Soviet-Harvard approach to Strategy and allowing startups and small business units to rise dramatically, with not yet a corporate response in sight.

Maybe is just the natural thing that we are coming back to commerce origins, where a humble craftsmen will tinker with its materials and produce something of value for its community, and the subsistence of its family. Is not that different because is done now in a digital way by many freelancers. Discovering your “strategy” by doing, selling your stuff, and seeing demand in action for what you do, has been the basis of any new commercial endeavor since the first one started to exist -probably 2500 years ago-. Seems that practice will take its natural place in commerce actions again, anything else is just expensive charlatanism.

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