Myths of Strategy

Myths of Strategy Plot Summary

Introduction

Strategic success in business and life often seems like a mystery, with many of us clinging to popular myths about what drives achievement. We're constantly bombarded with "proven" formulas for success—from visionary leadership and careful planning to aggressive competitiveness and relentless focus on innovation. Yet these widely accepted principles frequently fail to deliver their promised results, leaving us wondering where we went wrong. This exploration of strategic myths challenges conventional wisdom by examining the evidence behind what really creates success. Through rigorous analysis of research findings and compelling case studies, we discover that many popular strategic principles are not merely incorrect but potentially harmful. The insights revealed here demonstrate that success often emerges from unexpected sources: adaptation rather than perfect planning, experimentation rather than expertise, and sometimes even from taking a step back rather than charging forward. By understanding the scientific mindset behind true strategic thinking, we can better navigate uncertainty and make decisions that lead to sustainable results rather than temporary victories.

Chapter 1: Beyond Best Practices: Why Copying Success Often Fails

Looking to successful companies for inspiration seems like common sense. After all, if Apple, Amazon, or IKEA have achieved remarkable results, shouldn't we follow their lead? This instinct has spawned countless business books that identify common features among successful companies and present them as recipes for success. However, this approach contains a fundamental flaw that undermines its effectiveness. The problem lies in what statisticians call "selection bias." When we study only successful companies, we miss a crucial comparison: how do these companies differ from unsuccessful ones, apart from their success? As researcher Jerker Denrell demonstrated, without examining failed companies, we cannot determine whether the characteristics we observe in successful organizations actually caused their success or were simply coincidental. For instance, a study might observe that 78% of high-performing companies focus on their core business and conclude that focusing on core business leads to success. But this doesn't account for the many failed companies that also focused on their core business. Strategic success emerges from making choices that confer uniqueness rather than from imitating others. To achieve this, companies must answer three fundamental questions: Who are our intended customers? What products or services are we offering them? And how do we deliver these offerings? The challenge is that we can only know in hindsight whether our answers were correct. Nespresso's eventual success came after initially targeting the wrong market (businesses instead of affluent individuals) and nearly abandoning the project altogether. This points to what Michael Raynor calls the "strategy paradox": to be successful, a company must make distinctive choices that set it apart from competitors, but these very choices increase the risk of failure. Companies that make bold strategic choices either achieve remarkable success or spectacular failure, while those avoiding distinct choices typically achieve mediocrity. The paradox explains why many executives avoid making clear strategic choices altogether—they prefer the safety of mediocrity to the risk of failure. Rather than attempting to copy success formulas, organizations should embrace a process of experimentation to develop their unique strategic position. This approach recognizes that strategic success rarely comes from having a brilliant idea at the outset, but rather from testing and refining approaches until a winning formula emerges. The best entrepreneurs don't wait for perfect clarity before acting—they try things out, learn, adjust, and eventually stumble upon breakthrough ideas through this iterative process.

Chapter 2: The Scientific Mindset: Experimentation as Strategic Foundation

When discussing strategy, many business leaders tend to view it as fundamentally different from scientific endeavors. They imagine strategy as an art form requiring innate vision rather than a discipline that can benefit from systematic investigation. This distinction, however, is largely artificial and potentially harmful to strategic thinking. The most effective strategies often emerge from adopting a scientific mindset that prioritizes hypothesis testing and experimentation. Consider Richard Rumelt's insight from his consulting work with Hughes Electronics. When an executive complained that strategy seemed "vacuous" compared to scientific approaches, Rumelt realized the power of drawing parallels between strategic thinking and scientific discovery. Just as scientists form hypotheses, test them, and refine their understanding, strategists must develop theories about what might succeed in the marketplace, test these theories, and adjust based on results. Starbucks exemplifies this approach. Howard Schultz's original hypothesis—that Italian-style coffee bars could succeed in America—underwent years of testing and refinement. The earliest Starbucks locations differed dramatically from today's stores, featuring Italian menus, opera music, and no chairs. Through experimentation, Schultz discovered what resonated with American consumers. This experimental approach addresses a common challenge in strategy development: discomfort with uncertainty. Without testing, it's impossible to know whether a strategy will succeed, which naturally creates anxiety. Rather than allowing this uncertainty to paralyze decision-making, embracing experimentation generates the information needed to refine initial strategies. This new information often reveals unexpected insights that no amount of planning could have anticipated. Serendipity—finding valuable things you weren't explicitly searching for—plays a crucial role in strategic success. YouTube's founders didn't set out to create a video-sharing platform; they initially built a dating website called "Tune In, Hook Up" where members could post videos of themselves. The pivot to a general video-sharing platform came only after they experienced personal frustrations with sharing videos and finding specific content online. This illustrates Nicholas Dew's three elements of serendipity: active search (already working on a website), fortunate contingencies (experiencing problems sharing videos), and the shrewdness to recognize opportunity. Contrary to popular belief, strategic success rarely results from brilliant preplanned insights. Instead, it emerges from a willingness to start somewhere, experiment, and apply thoughtful analysis to unexpected results. As scientist Louis Pasteur observed, "Fortune favors the prepared mind." Strategic success requires both action and reflection—the willingness to take steps before perfect clarity exists, combined with the analytical ability to recognize and capitalize on unexpected developments along the way.

Chapter 3: The Emergence of Strategy: Adaptation Over Perfect Planning

IKEA, the world leader in home furnishings, is renowned for its revolutionary business model built on four pillars: self-assembly flat-pack furniture, Scandinavian design, outsourced production to low-cost countries, and enormous stores combining showrooms with self-service warehouses. Conventional wisdom might suggest this strategic masterpiece resulted from deliberate planning. The reality tells a different story—one that challenges our understanding of how successful strategies actually develop. An in-depth examination of IKEA's history reveals that its strategy emerged gradually through reactive adaptation rather than comprehensive planning. The concept of self-assembly furniture wasn't a visionary insight but a practical solution to reduce damage during transport after insurance companies complained. Similarly, IKEA began designing its own furniture only after established Swedish manufacturers, pressured by a furniture sellers' cartel, refused to supply the company. The move to source furniture from Poland came as a desperate response to this boycott, not as a calculated cost-reduction strategy. Even the signature store layout emerged unexpectedly when a customer rush forced a warehouse manager to let shoppers help themselves, accidentally creating the self-service concept. This pattern illustrates what strategy researchers distinguish as "emergent" versus "deliberate" approaches to strategy. While deliberate strategy involves careful formulation followed by implementation, emergent strategy constructs itself step-by-step through experimentation and adaptation to constraints. IKEA founder Ingvar Kamprad began with only a general aim—"offering well-designed functional home furnishing products at prices so low that as many people as possible will be able to afford them"—and the specific execution evolved through continuous experimentation. From IKEA's history, we can extract four recommendations for cultivating successful emergent strategies: Start with a general aim that can be fine-tuned over time; embrace constant experimentation without fearing mistakes; transform apparent threats into opportunities; and remain open to adapting ideas from various sources. Kamprad didn't invent self-assembly furniture—another Swedish company developed it first but failed to fully capitalize on the concept. Research by Torben Andersen suggests organizations can reconcile deliberate and emergent approaches by combining clear strategic direction from top management with distributed decision-making that gives lower-level managers autonomy in implementation. His study of 185 industrial companies found that strategic planning has a positive impact on performance, but this effect is magnified when combined with distributed decision-making that allows for adaptation. Interestingly, the benefits of both strategic planning and managerial autonomy increase in more volatile environments—contrary to the notion that planning becomes less relevant in uncertain settings. This balanced approach recognizes that while organizations need a general strategic direction, the specific path to success often emerges through experimentation and adaptation rather than perfect planning. The ability to adjust course while maintaining a consistent overall aim distinguishes truly successful strategies from rigid plans that fail to adapt to changing circumstances.

Chapter 4: Balancing Forces: Reconciling Short-Term and Long-Term Thinking

All organizations face a fundamental dilemma: to succeed today, they must exploit current opportunities, but to thrive tomorrow, they must explore new ones. Research consistently shows that most leaders overemphasize exploitation of existing opportunities—a beneficial approach in the short term but potentially devastating in the long run. A business that fails to explore new possibilities won't survive significant environmental changes. Conversely, a firm can't focus exclusively on exploration, as it risks not surviving long enough to capitalize on these future opportunities. This tension creates what organizational theorists call the ambidexterity challenge—how can organizations effectively balance exploitation and exploration? Peter Boumgarden, Jackson Nickerson, and Todd Zenger identify three approaches to this challenge: organizational ambidexterity (splitting the firm into separate units for exploitation and exploration), organizational vacillation (alternating between exploitation and exploration phases), or combining these approaches. The history of USA Today illustrates this evolution. Initially, its print and online operations were fully integrated with limited success. Later, an independent internet division was established, allowing experimentation with new business models. Eventually, recognizing the need for synergy, the operations were reconnected and ultimately merged. BMW demonstrates the effectiveness of organizational vacillation at a company-wide level. Between 2000 and 2002, BMW focused on exploitation by selling off underperforming brands and enhancing productivity. From 2002 to 2006, the company shifted to exploration, launching innovative new models including the Mini and Rolls-Royce Phantom. Between 2006 and 2010, BMW returned to exploitation, focusing on growth through existing models. After 2010, BMW pivoted back to exploration with its "Shaping The Future" strategy featuring electric and hybrid models. Interestingly, each strategic shift generally coincided with CEO changes, reflecting the reality that few leaders excel at both exploitation and exploration. How can organizations determine whether they lean too heavily toward present or future focus? Freek Vermeulen suggests five diagnostic questions: What percentage of sales comes from products less than three years old? How much time can employees devote to passion projects? How difficult is it to secure funding for small experiments? Is ROI calculation mandatory for project approval? How important are formal processes? Organizations focused on the present typically score poorly on these measures, prioritizing efficiency and control over innovation and autonomy. Another crucial distinction involves understanding the difference between lagging and leading indicators. Most companies fixate on lagging indicators like market share, revenue, or profitability—measures that reflect past performance but cannot be directly influenced. Leading indicators, though harder to define and measure, reveal whether a company is on track to achieve future goals and can still be influenced. For example, while financial results are lagging indicators, behaviors like challenging conventional thinking, experimenting without fear of failure, and cross-functional collaboration are leading indicators of future innovation success. By recognizing these dynamics and deliberately designing organizational structures and processes that balance exploitation and exploration, companies can achieve both short-term results and long-term sustainability. The key lies not in choosing between present and future focus, but in orchestrating their integration through thoughtful organizational design and leadership approaches.

Chapter 5: The Innovation Paradox: Why Resources Aren't Always the Answer

Conventional wisdom suggests that greater resources lead to more innovation—larger R&D budgets, better facilities, and more staff should translate into greater innovative output. Yet research consistently challenges this assumption, revealing what might be called the innovation paradox: resources alone often fail to generate meaningful innovation and can sometimes actively inhibit it. In the late 1990s, Hewlett-Packard, with annual sales of $30 billion, established clear criteria for identifying new business opportunities: proximity to core business and potential market size exceeding one billion dollars. Despite substantial resources, these initiatives consistently failed. Gautam Ahuja and Curba Lampert explain this phenomenon through three traps that large firms frequently encounter: the familiarity trap (favoring familiar businesses over unfamiliar ones), the maturity trap (preferring established markets over emerging ones), and the propinquity trap (choosing proven technologies over novel ones). These biases systematically steer resource-rich companies away from truly innovative opportunities. The conventional approach to evaluating innovation—calculating return on investment (ROI)—further compounds the problem. When Google founders Sergey Brin and Larry Page sought to sell their company in its early stages, both Excite and Yahoo declined to acquire it for relatively modest sums. These decisions likely resulted from ROI calculations that failed to predict Google's future value. Nicholas Dew and colleagues suggest an alternative framework—the "affordable loss" concept—which asks not "How much will we earn if this succeeds?" but "How much can we afford to lose if this fails?" This approach is simpler, more reliable, and doesn't automatically rule out the most innovative projects for which future revenues cannot be accurately estimated. How, then, do innovations actually emerge in resource-rich environments? Often through what Paddy Miller and Thomas Wedell-Wedellsborg call "below the radar" innovation. When Jordan Cohen at Pfizer recognized that colleagues wasted time on low-value tasks, he didn't immediately propose outsourcing these tasks to top management. Instead, he experimented with a small group of colleagues, secured support from a mid-level manager, and only approached senior leadership after demonstrating the concept's value. This stealth approach—securing powerful allies, accessing underutilized resources, and developing a "cover story"—often proves more effective than formal innovation processes. Paradoxically, many breakthrough innovations emerge not from resource-rich environments but from resource-constrained settings. Apple's origins exemplify this pattern—founded by Steve Wozniak and Steve Jobs after their employers (Hewlett-Packard and Atari) rejected their microcomputer project. Large firms often unintentionally serve as incubators for employee ideas that later become independent ventures. As Pino Audia and Chris Rider demonstrate, successful entrepreneurs frequently leverage knowledge, confidence, and networks developed during corporate employment to identify opportunities and launch ventures. The innovation paradox reveals that resources matter less than how they're deployed. Organizations seeking to innovate should focus less on increasing innovation budgets and more on creating conditions that encourage experimentation, tolerate failure, and allow promising ideas to develop without premature evaluation through rigid ROI calculations. True innovation requires not just resources but the freedom to deploy them in unconventional ways.

Chapter 6: Navigating VUCA: Strategic Thinking in Uncertainty

We live in a world characterized by Volatility, Uncertainty, Complexity, and Ambiguity—commonly referred to as VUCA. Originally coined by the US military after the Cold War, this acronym has become a staple in business strategy discussions. The story of how Mohamed Bouazizi's self-immolation in Tunisia eventually contributed to Brexit illustrates our interconnected VUCA world: Bouazizi's protest sparked the Arab Spring, leading to regime changes across North Africa; when Syria's civil war erupted, millions of refugees fled to Europe; resulting discontent in Britain contributed significantly to the Brexit vote. While many claim the business environment has become increasingly VUCA over time, academic research presents mixed findings. Some studies show decreased persistence of performance (suggesting greater instability), while others indicate no change or even increased stability at the top. What remains clear is that VUCA conditions have always characterized business environments to some degree. As one Financial Times journalist noted, "Business leadership has always been tough... In more than 30 years of writing about business I have never seen a time when company bosses have not felt assailed and vulnerable." Rather than using VUCA as an excuse for strategic paralysis, effective leaders break down these challenges and develop specific responses to each component: Volatility demands adaptation before changes occur, not merely after they happen. While many organizations pride themselves on agility—reacting quickly to environmental changes—this reactive approach often comes too late. By the time competitors have launched new products or adopted new technologies, the opportunity for competitive advantage may have passed. As Steve Jobs observed, technological waves can be seen "way before they happen," allowing leaders to choose wisely which ones to ride. Apple's introduction of the iPhone while the iPod was still successful exemplifies this proactive approach—despite effectively cannibalizing its own product, Apple positioned itself ahead of inevitable market evolution. Uncertainty requires shaping outcomes rather than merely predicting them. While many organizations attempt to reduce uncertainty by gathering more information (like financial institutions using big data to predict loan repayment), an alternative approach involves actively influencing outcomes. Instead of simply rejecting "risky" loan applications, financial institutions might approve more loans while implementing programs to increase repayment likelihood. Similarly, Google and Apple don't try to predict which apps will succeed; they create ecosystems where developers have incentives to produce great apps, effectively shaping rather than forecasting the environment. Complexity necessitates understanding unintended consequences rather than relying exclusively on artificial intelligence. While AI excels at pattern recognition, it struggles with complex strategic decisions where actions can have contradictory effects across different timeframes or organizational areas. Leaders must develop frameworks for identifying and managing these interconnected impacts rather than assuming technology alone can navigate complexity. Ambiguity calls for experimentation rather than imitation. When cause-effect relationships are unclear, organizations often look to competitors for guidance. This approach frequently leads to "the blind leading the blind" phenomenon, as demonstrated by Vivendi's failed acquisition of Universal—a strategy inspired by the equally unsuccessful AOL-Time Warner merger. Rent the Runway's founders took a different approach, designing sequential experiments to resolve specific ambiguities about their business model: Would women rent dresses? Would they rent without trying them on? Would they rent without seeing them? This experimental approach systematically reduced ambiguity through direct testing rather than inference from others' experiences. By addressing each VUCA component with tailored approaches—proactive adaptation for volatility, outcome-shaping for uncertainty, systems thinking for complexity, and experimentation for ambiguity—leaders can transform these challenges from obstacles to opportunities for strategic advantage.

Chapter 7: The Human Element: Leadership Myths and Reality

A persistent myth in business is that the most successful leaders are visionaries who develop brilliant strategies and stick to them through thick and thin. We admire leaders who appear to have a clear direction and unwavering commitment. Yet research and real-world examples suggest effective leadership often looks quite different from this heroic ideal. Consider former Intel CEO Andy Grove's surprising description of his leadership approach: "None of us have a real understanding of where we are heading... But decisions don't wait for that picture to be clarified. You have to make them when you have to make them... When you realize that you are wrong, correct course very quickly." This admission contradicts our expectations of visionary leadership. A study by Barry Staw and Jerry Ross helps explain why: when managers evaluate CEOs, they consistently rate those who succeed with a consistent strategy higher than those who succeed after trying several approaches. In some cases, managers even rate CEOs who fail while maintaining a consistent strategy more favorably than those who succeed after changing course. This preference for visionary persistence creates problems in increasingly unpredictable environments where adaptation and experimentation prove more valuable than unwavering commitment to a single approach. As Grove's success at Intel demonstrates, the ability to acknowledge uncertainty, make provisional decisions, and quickly adjust when evidence suggests a different direction often proves more effective than maintaining an appearance of perfect foresight. Research by Gautam Mukunda reveals another counterintuitive leadership pattern. Examining the distinction between "filtered leaders" (those who rise through established systems) and "unfiltered leaders" (outsiders with less traditional experience), he found that outsiders produce both the best and worst results. While home-grown leaders deliver more consistent but average performance, outsiders either achieve outstanding success or spectacular failure. This suggests that when organizations need transformational change, the higher variance associated with outsider leadership may be worth the risk—as demonstrated by Lou Gerstner's successful turnaround of IBM despite his lack of technology industry experience. The connection between leaders and performance is more nuanced than typically assumed. Studies show that CEOs account for only 10-20% of performance variance, with industry and firm characteristics exerting greater influence. CEO impact varies significantly by country—accounting for 19.5% of performance variance in the UK versus just 6.5% in Japan—reflecting differences in managerial discretion across business cultures. Middle managers, often overlooked in leadership discussions, frequently exert greater influence on performance than senior executives. In the video game industry, for instance, project managers (producers) account for 22.3% of variance in game sales compared to just 7.4% for creative staff (designers). Perhaps most surprising is research on leadership selection methods. When Alexander Haslam and colleagues examined different approaches to choosing leaders, they found that groups with randomly selected leaders made better decisions than those with leaders chosen through either informal selection (group discussion) or formal testing. While team members rated randomly selected leaders lower despite their superior results, the findings suggest our assumptions about identifying effective leaders may be fundamentally flawed. These research insights challenge us to reconsider leadership development. Rather than seeking charismatic visionaries with unwavering commitment to predetermined strategies, organizations might benefit more from leaders who embrace uncertainty, adapt quickly to changing conditions, distribute decision authority, and focus on creating conditions where collective intelligence can flourish. The human element in strategy often manifests not through heroic individual vision but through thoughtful orchestration of collaborative adaptation.

Summary

Strategic success relies not on mythical formulas but on a scientific mindset that embraces experimentation and adaptation. Throughout our exploration, we've seen that many conventional ideas about strategy—from copying best practices to perfect planning, from resource abundance to visionary leadership—fail to withstand scrutiny. Success emerges not from following a predetermined path but from developing hypotheses, testing them systematically, and adapting based on evidence. This process demands both intellectual humility to recognize when initial assumptions prove incorrect and the courage to change course accordingly. The core insight uniting these myth-busting revelations is that strategic success is fundamentally an emergent phenomenon rather than a designed outcome. While deliberate planning and resource allocation play important roles, the most effective strategies develop through an iterative process of adaptation, learning, and refinement. Organizations that balance exploitation with exploration, that view uncertainty as an opportunity for experimentation rather than a threat, and that recognize the limitations of visionary forecasting consistently outperform those clinging to strategic myths. By adopting this evidence-based approach to strategy, leaders can navigate complexity not by seeking illusory certainty, but by building robust systems that learn and adapt continuously in response to an ever-changing environment.

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Jerome Barthelemy

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