The day the music died. (strategic agility)(Planning Theory) Francis Gouillart.

Abstract: Strategic planning in the 1990s follows holistic approaches and focuses on organizational transformation. This means that corporations need to have strategic agility to survive in the new business environment. Being strategically agile enables organizations to transform their strategy depending on the changes in their environment. This approach is actually the eight generation of strategic planning. The first generation merely analyzes strengths and weaknesses and was popular during the 1950s. The 1960s brought qualitative and quantitative models of strategy, which are the next two generations. During the early 1980s, the shareholder value model and the Porter model became the standard. The rest of the 1980s was dictated by strategic intent and core competencies, and market-focused organizations. Finally, business transformation became de rigueur in the 1990s.

Full Text: COPYRIGHT Research Institute of America Inc. 1995

I used to believe in strategy and rock 'n roll. Two-by-two matrices and electronic keyboards were my life, but I haven't played with either of them in years - because I lost faith.

I am an ex-strategist. I used to write books on the stuff. I was once called an "ayatollah of strategy." Now I'm blamed: for having been a strategist, and for being one no longer. I've lost my belief in rock 'n roll, too. I used to bounce from my Elton John piano to my Moog synthesizer creating whirling sounds that impressed young women. No more.

When people ask me to speak at conferences, I say "I am more interested in transformation than 'pure strategy.' " The "pure" probably tips them off. "You mean you're not into allocation of resources?" they ask incredulously. "You've lost faith in competitive interviews and strategic options?"

As I try to justify, my case for a broader perspective, this blend of disappointment and aggression becomes more evident. I'm attacked on three fronts. One: "You mean, you're doing operational stuff - like process reengineering?" (This with condescension, and even a hint of hostility.) Two: "Have you gone soft? Like doing people things?" Three: "Next you'll be saying technology is the key."

Then, I must admit, I often lie. "No," I say, "I'm sure you're right. Technology has nothing to do with it. Pure strategy's where it's at." But I'm still dreaming of transformation and holistic approaches.

Talkin' 'bout My Generation

People of my generation, seeking to understand why companies succeed, have spent most of their time hunting an elusive animal called the SCA, or, to give its full name, the sustainable competitive advantage. They've hunted it in the belief it was the embodiment of success; a guarantee, if not of corporate immortality, at least, of a long, healthy, and prosperous business life.

But they never found the creature. Or, if they found it, they never caught it. It seems the SCA, once found, becomes sand, running through fingers.

There is some evidence of the animal's previous existence in the Great Museum of Corporate Profitability. The IBM exhibit, for instance, shows the company could do no wrong - for a long period. The AT&T exhibit, the DuPont exhibit, and the Siemens exhibit all suggest these firms domesticated the SCA - for a while. Maybe the SCA is like the Great Awk. It might have existed once, but it became extinct so long ago that no one really knows for sure.

Think of the gallery of forebears I'm repudiating with these metaphysical doubts. I sometimes dream a whole wing of the Library of Congress is dedicated to the SCA. Equestrian statues of the great strategists guard the entrance. Bruce Henderson, the golden knight, frowns at me. Michael Porter, on a white stallion, wags an admonitory finger.

Most corporate strategies are based on the belief that there is permanence in the strategic order. It is the same when we invest; we implicitly express a belief that things will stay stable enough, during the investment's life, to substantiate the assumptions underlying the predicted returns.

How many chemical reactors, steel plants, textile mills, and shipyards were built in the name of sustainable competitive advantage? What happened to those heroic assumptions we made about the price of a pound of ethylene, or a ton of steel?

And what should we make of the procession of CEOs coming to public forums and admitting, Alcoholics Anonymous-fashion, that they're hooked on IT, but have never gotten a return on their investment?

I've reached that age where certainty gives way to doubt. It seems to me the sustainable competitive advantage is alignment of our imagination - at best, a flash of lighting in the competitive storm. We've witnessed the crumbling of many competitive advantages in the past 20 years. Didn't GM, Wang, Data General, Philips, and Siemens "own" distribution, scale, technology, and innovation?

I hesitate to say it, but I'm beginning to believe strategic agility is more important than strategy - that a firm's ability to make money has more to do with its ability to transform itself, continuously, than whether it has the right strategy.

At the risk of excommunication, I suggest strategy itself is a meaningless concept, if it implies sustainability. Perhaps only strategic processes exist. Let me explain how I became a strategic agnostic.

My Years in a Strategy Rock Band

I am the kid of the strategy boutique generation. When I was a consultant in France, I figured I could live well by "doing" the top 100 French companies every 10 years. I thought my clients should be self-sustaining, in the meantime. I would return each decade to help them reset their strategic dials.

My formula was half experience curve, a la Boston Consulting Group, and half critical success factors a la General Electric and McKinsey. I pinned market share charts on my walls, between posters of the Doors and the Rolling Stones. For me, Bruce Henderson was on a par with Hermann Hesse, the great guru of my life.

I'm told I'm actually a mix of second and third strategy generations. Strategy, it seems, was born before the mid-'60s (see chart, right). That there could have been strategic thinking before the experience curve and critical success factors is hard to accept, but I suppose it's possible. The method of this first generation was "analysis of strengths and weaknesses." Gosh, were we fathered by something, and by something like that?

I've handled artifacts from that period, in the form of case anthologies, weighing the pros and cons of strategies, but I soon say they lacked analytical rigor. They were for class discussions at Harvard Business School where they believed that from discussion comes light. That's true when confusion doesn't obscure the light.

The bedrock of my strategic apprenticeship was laid in the mid-'60s, when I discovered the power of the Analytic. Where there was fluff, strategic model created order. There were passionate discussions, in those days, between the qualitative school (second generation) and the quantitative school (third generation). I decided to position myself, firmly, on both sides of the argument.

The qualitatives, led by McKinsey and General Electric, held that companies could differentiate themselves, with critical success factors, and the attractiveness of markets could be described with a list of attributes. Confronting these in a "competitiveness-attractiveness matrix," showed companies where to invest. This was the first in a long line of two-by-two matrices. The qualitatives were the poets - I was one of them, or half of me was.

The quantitatives, led by Boston Consulting Group, were the engineers. They identified attractiveness with growth and competitiveness with market share. Half of me was engineer, and the engineers did not care for the poets, and the poets reciprocated. The strategic "me" became androgynous; I wanted to dress like Lou Reed and David Bowie and paint a Z across my face.

Humility was never our strongest suit. A colleague told me that the law of experience curve was like the law of gravity: inescapable. We marched to the beat of volume accumulation and sought the most aerodynamic posture to glide down the experience curve. Some of us raced faster than others; a few encountered trees or walls.

We knew the truth, and CEOs were enlightened by our insights. When in doubt, I returned to the analytic. I could answer any question. I learned later that if you're young, strident, and narrow, people often think you're deep.

If client data showed experience effects, I put those in the Great Book of Truth. If not, I scorned their inability to exploit economies of scale inherent in their business. There had to be some because it said so in the Great Book.

If my clients found no correlation between market share and profitability, they had the wrong segmentation. Ultimately, I figured out the best way to explain why a small company did well was to segment the market around them. If a firm was making a lot of money assembling bikes in lower Saxony, bicycle assembly in lower Saxony became a strategic segment, dominated by that company.

Observing this behavior, a client suggested to me that if I measured market share in the universe of a firm's customers, its market share would be quite high. I ignored him. There's no room for sarcasm in matters of strategy.

This period taught me some lessons. I learned that there are volume-driven businesses; far fewer than we said, but a few. Competitive and cost analyses do help explain how firms make money. And an integrated view of the resource allocation process, down to cash-flow allocation across the company's activities, can be helpful.

For these reasons I remain attached to those models, despite their graceless aging. They mark an important period of conceptual development.

They're like the Grateful Dead. They don't make good music anymore, but they've been a source of inspiration for their followers.

Rock 'n Roll Lives, Strategy Lags

Later, I discovered the concept of "shareholder value" (fourth generation). Back in Europe, we didn't care much about shareholder value. At the end of the day, the corporation was usually owned by a quasi-public investment group, a nationalized bank, or by the government outright. Apart from London, Europe's bourses were little more than gambling clubs for institutional investors.

But it became clear the corporate raiders in America and the U.K. meant business. They were making shareholder value quite relevant to everyday life. People could lose their jobs - and their pension funds - at these games.

We watched Union Carbide, TWA, Ashland Oil, and many others come under fire. I observed Carl Icahn, Sir James Goldsmith, and the Belzberg brothers pick apart businesses. It reminded me of dissecting frogs at school.

We saw the birth of a new kind of consulting, with Strategic Planning Associates, Marakon, and Stern Stewart. I electrified my organ and learned the Emerson Lake and Palmer repertoire. We read Alfred Rappaport and Bill Fruhan, and took courses on computing betas, and market-to-book ratios.

We had to. Those abrasive evangelists of the fourth generation were describing us as strategic dinosaurs. The chutzpah! Those parvenus would still have been analyzing stock prices at Wharton and Chicago if we hadn't shown them how to do strategy consulting. "You're to strategy what Glenn Miller is to music," one of them said, in his phosphorescent Led Zeppelin tee-shirt. We added a couple of megawatts to our amplifier and moved on.

We deserted the quiet of the board room for the smoke-filled hangouts of the deal makers. Shirt-sleeves and dawn bids. with 24-hour, take-it-or-leave-it clauses; piles of money on the table. I felt like Robert Redford in The Sting I put some Scott Joplin into my hard rock.

It was great fun. The worth of a business was computed on a value curve. Stock price was a function of return on equity, adjusted for risk. There were equations, with second and third derivatives. Bespectacled Baker scholars would argue, all night, about how to allocate debt across the business.

But it was also brutal. Businesses were tradable commodities, and it was no fun to be "in play." I nearly lost my brother-in-law his job, in one deal.

The deal-making firms had a characteristic structure. There were a few high-fliers managing clients and a sweat shop of young analysts working long hours in a cave at a prestigious address. We called it "the Cavern," in homage to Liverpool. The usual sentence for analysts was two years detention, but if they were particularly good number crunchers, this was sometimes extended to three years. Either way, they never saw daylight.

Shareholder value was techno-power, at its rawest. We rationalized it, through our belief in the superiority of the capitalist system, and our blind faith in the efficiency of markets.

We had no patience with the idea of synergy. Overhead was a barrel of dynamite, awaiting a match. People considerations were for wusses. We had a break-up bias because we knew most companies lacked the moral fortitude to maximize their stock price. As deal makers, we could afford to cut overhead in half, take debt to 80% of capitalization, and spin off the crown jewels in LBOs.

From Wild Flower to Wall Street

In America, but not yet in continental Europe, the wind went out of shareholder value's sails. The well of junk-bond cash ran dry. Our deal-making went the way of white disco suits and Calvin Klein jeans. Icahn and Perelman became sedate businessmen.

Shareholder value has been absorbed into a broader approach. It remains the best representation of the owner's point of view, and that is becoming a precious quality again, at a time when boards are intent on becoming players in the game, rather than decorative wallpaper. And it has found a niche in compensation. If the job of executives is to create value, why not tie their compensation to the value they create for shareholders?

After the first shareholder value wave (there've been others, and there will be more) came the new sound of Michael Porter (fifth generation). This marked the return of the Harvard Business School as the great strategy studio, and a switch from a shareholder to an industry perspective. The lyrics were tighter, the music more symphonic. The Police who replace the Who. My keyboard soon resembled a helicopter's control panel.

Porter had been a Federal Trade Commission regulator, but he switched sides and, instead of policing oligopolies and monopolies, he began helping companies, and later countries, to shape their industry structure to their own advantage (within those regulatory limits, of course).

"Why does the pharmaceutical industry make money but the OEM tier business does not?" he asked. "Because there are five forces that determine the profitability of industries," he explained. Executives began buying his record. Some bought the video for their daughters. He also showed that low-cost strategies were not always appropriate, and so demolished 20 years of Boston Consulting Group dogma.

Porter suggested differentiation and focus as strategies, and he revamped the clumsy cost structure approach as the "value chain." The look became more formal. Sting rather than Alice Cooper.

My generation welcomed Porter. We thought we had written his book, Competitive Strategy. His approach was refreshing, after leveraged betas and second and third derivatives. We loved the return of a business perspective in the tradition of matrix-based models. We were back to civilization. It was music we could play.

It was also an analytical heaven. The five forces model gave us latitude to go study everything - competitors, customers, suppliers, technologies, and that magnificent excuse for analytical excess, "potential entrants" (which could include my grandmother and the Boston Red Sox). Consulting budgets became very large indeed.

Porter's five forces are still useful for capturing industry data, the value chain remains a work horse of strategic analysis, but the generic strategies and the U-shaped curve have not aged well. They've been branded with the label "ex post" because they explain what happened but lack predictive power. As Gary Hamel once uncharitably put it, Porter's model is to business success what Biblical exegesis is to sainthood: You can study it all you want, but you'll never get there.

After Porter, I knew that things would never be the same, so I decided to look for the real me. I left my rock group and moved to America. In the summer of 1989, I went to a concert in Ann Arbor, Michigan. The band was called Strategic Intent and Core Competencies and featured C.K. Prahalad from the University of Michigan and Gary Hamel, his former student, from the London Business School. The music magazines billed the new band, sixth generation.

I'd never heard anything like it. The approach was a strange mixture of analytical rigor and mysticism, a blend of old-fashioned beat and oriental influences. Although confused by the multi-layered message, I spotted the brilliant strategic prescription. Instantly, I knew they would change my life.

Live Improvisation and Jam Sessions

"All the prescriptions of traditional strategic models are fundamentally flawed," Prahalad and Hamel claimed, "because they rely on some kind of segmentation. As a result, each entity fights as a stand-alone division, rather than as part of an army. That is why the Japanese have destroyed Western rivals over the last 20 years; Canon versus Xerox, Komatsu versus Caterpillar, and Toyota and Honda versus Ford and GM.

The model uses a botanical metaphor. Each core competency is a root of a tree, and each business a fruit on the upper branches. The fruit becomes abundant and succulent through the nurturing of the roots.

The sap rises, promoting growth in the branches and yielding the lucrative harvest of which business success is made.

Traditional methodologies are flawed because they pump water directly in to the fruit, rather than the roots. The tree is the "strategic architecture," and the firm's ambition is its "strategic intent."

I became a disciple. I searched for strategic intent with my clients. I discovered their tree metaphor was just that, a metaphor. What mattered was the search. In seeking strategic intent, firms would learn to mobilize their energies. They would begin growing again after decades of contraction. They would reach for higher ground, raise their sights. And, as if by faith healing, their performance would begin to improve.

I felt the power of strange words: like "change management" and "mobilization."

But I was not convinced. "This can't be," I protested. "There must be an analytical key, hidden behind the metaphor." But the more I looked, the more certain I became there was no secret key. Even so, there was something to this mysticism. The unfathomable Orient was bewitching me. The right side of my brain was taking over the left.

About a year later, the world of Market-Focus entered my life (seventh generation). My first reaction was that I had heard all this before. "Yeah," I thought, "customer stuff. Old marketing soups, warmed up."

But, as I listened to Lynn Phillips and Mike Lanning - the arch-priests of "Building Market-Focused Organizations" - I became intrigued. I had worked a lot with commodity chemical companies (this interest could be traced back to my penchant for weird substances in my rock 'n roll days), but I had never managed to sell them differentiation. "When you make ethylene oxide, there ain't much you can do, son," a Union Carbide manager had told me.

Phillips and Lanning thought otherwise. And they were right. We invented a strange verb: to "de-commoditize." We learned that by jumping several steps down the value chain, we could reinvent businesses and their margins.

Our market-focus workshops developed a following. Companies embarked, with us, on quests for new Value Propositions. We invented "on-line strategy" - making up stuff right there, in front of clients and their customers. I discovered the power of live improvisations - creating business success in collective jam sessions. And, because clients saw it unfold, in front of their eyes, it was hard for them to discount or ignore. "Change management" and "mobilization" were back, in their second incarnation.

Crise de Coeur

It was time for my mid-life crisis. I had survived, more or less intact, seven strategic generations. I had moved from my piano to electronic orchestras, from carefully crafted singles to unbridled, live improvisations. I'd been shaken to my analytical foundations many times, and been confused by battles between hard and soft. The two sides of my brain had had meltdown.

I became ecumenical. "From now on, I'll do transformation," I thought (eighth generation). "No model will ever displace another, again. Each generation will stand on the shoulders of its progenitors. I will help to write the symphony of business success, compose an integrated score, accommodating all approaches. It will be an asylum for oppressed ideas, a haven for all models that contribute to change and progress, irrespective of origin - a Noah's ark, so to speak, of business knowledge and wisdom.

I became a humble student. I learned from Jack Welch how to transform a large company like GE. I saw Don Peterson bring Ford back from the dead. I read Pascale and Tichy. I studied process reengineering and attended information technology classes to overcome my phobia. I persuaded myself leadership development and large-scale mobilizations were as important as changing a value chain.

I discovered polyphony - a Transformational counterpoint. We played with orchestras so large no one believed they could exist. We composed global symphonies - fugues with 400,000 people. At long last, we had proven Crosby, Stills, Nash and Young were right. You could change the world. Or, at least, a small part of the corporate world. Disjointed statements whirl through my head. Progress comes from mixing many disciplines, not refining one... Modesty and humility are our strengths... Artistry is as important as mathematics... We must think like humanists, not evangelists... Don't trust exquisite, narrow specialists - they'll take you down blind alleys... Seek integration and assimilation... The company is like the human body: it needs holistic medicine, not organ-by-organ treatments....

But out of all this confusion, a new certainty has emerged - that companies can grow and prosper, when all about them is change and chaos, if they have the courage to abandon their quest for Sustainable Competitive Advantage and seek instead a style of changing that combines nimbleness with vision and clarity with humanity.

RELATED ARTICLE:

* Analysis of strengths and weaknesses

1960

* Qualitative models of strategy (competitiveness-attractiveness; critical success factors)

* Quantitative models Growth-market share matrix (experience curve)

1965

1970

1975

1980

* Shareholder value model

* Porter model

1985

* Strategic intent and core competencies

* Building market-focused organization (Value Proposition)

1990

* Business Transformation

Francis Gouillart, a self-dubbed "strategy agnostic," is a senior vice present with Gemini Consulting. He also directs the Gemini Organizational Learning Division at the company's headquarters in Morristown, New Jersey.