Category Archives: Strategy

Robert Kaplan & David Norton: Balanced Scorecard

Take two electrical engineers. Put one into a management consulting role and the other into academia. Mix them up, and what do you get?

Yes, it is a trick question. Robert Kaplan and David Norton developed a powerful business strategy and performance measurement tool. Indeed, it’s a tool all managers should be aware of and understand: The Balanced Scorecard.

Robert Kaplan & David Norton - Balanced Scorecard

Robert Kaplan & David Norton – Balanced Scorecard

Robert Kaplan

Robert Kaplan was born in 1940 and studied Electrical Engineering at MIT, gaining a BS and then an MS, before moving to Cornell, to take a PhD in Operations research.

He started his academic career directly afterwards, moving to Carnegie Mellon’s Tepper School of Business in 1968. He remained there until 1983, serving as Dean of the school from 1977.

In 1984, Kaplan moved to the Harvard Business School, to take up the chair as Marvin Bower Professor of Leadership Development, which he now holds emeritus.

In 1987, Kaplan, along with William Bruns, first defined Activity Based Costing. It was to become a widely used methodology for gaining control of strategic revenue expenditure in industry. Ironically, it only started to lose ground when a new, more broadly-based approach started to gain popularity.

That approach was the Balanced Scorecard. And this was developed by Kaplan, along with David Norton. They first published their idea in a seminal paper in the Harvard Business Review, in 1992: ‘The Balanced Scorecard—Measures that Drive Performance‘.

David Norton

David Norton was born in 1941. He too studied Electrical Engineering, at Worcester Polytechnic Institute. He moved to the Florida Institute of Technology for an MS in Operations Research, and then to Florida State University for an MBA. He also gained a PhD from Harvard Business School.

Norton’s career was in consultancy, cofounding Nolan Norton & Co in 1975, and serving as president until it was acquired in 1987 by KPMG Peat Marwick. He became a partner, but shortly after the publication of Balanced Scorecard—Measures that Drive Performance‘ in 1992, he founded a new business to promote consulting with the Balanced Scorecard at its heart.

The Balanced Scorecard

We’ve covered the Balanced Scorecard before. But let’s revisit it in some more detail.The idea supposedly came from a conversation David Norton had on a golf course with IBM Executive, John Thompson. Thompson reportedly observed that he needed a scorecard, like the one they used in golf, for running his company.

In a variant metaphor, Kaplan and Norton suggest that it would be an unsafe airplane that had just one gauge in its cockpit. So the idea was born for a scorecard that looks at the business from multiple perspectives. Initially, it is four:

  1. Financial Perspective
  2. Customer Perspective
  3. Internal Business Perspective
  4. Organisational capacity and learning Perspective

Together, the key measures (or KPIs – Key Performance Indicators) under the headings articulate the organisation’s strategic priorities.

Kaplan & Norton - The Balanced Scorecard

Kaplan & Norton – The Balanced Scorecard

The Origins of the Balanced Scorecard

The original idea, however, tracks back to Art Schneiderman in 1987. He went on to work on a research project with Kaplan, and Norton’s firm Nolan Norton. This collaboration led to the publication by Kaplan and Norton in 1992, and their subsequent 1996 book, The Balanced Scorecard: Translating Strategy into Action. It’s now out of print and available only second hand or in digital editions.

One can’t help wondering what happened to Schneiderman – the Pete Best (5th Beetle) of the corporate strategy world. Well, it turns out he’s an independent consultant, and he gives his own history of the first balanced scorecard.

Implementing the Balanced Scorecard

The broad approach to implementing a balanced scorecard is:

  1. Make sure you have a clear vision and strategy
  2. Find the performance categories that best link your vision and strategy to success (Here are some different examples: service standards, thought leadership, marketing activity, performance management, internal morale)
  3. For each perspective, define a small number of objectives that support your vision and strategy
  4. Develop standards or ways to measure progress and build simple systems to monitor and communicate performance against each perspective
  5. Spread the word throughout your organisation that these measures will drive your reward and promotion mechanisms
  6. Monitor performance and compare it with your objectives
  7. Take action to bring performance in line with your objectives

The Legacy of the Balanced Scorecard

As a tool for controlling a business, the balanced scorecard tracks back to Taylorist Scientific Management. However, its flexibility allows managers to monitor and therefore control the measures they choose.

As a result, one of its most interesting descendants is John Elkington’s Triple Bottom Line.

Christopher Bartlett & Sumantra Ghoshal: Managing Across Borders

In the 1980s, globalisation was the ‘Big New Thing’. Never mind that Chinese and Levantine traders had traded across half the globe at the start of the first millennium BCE. At the forefront of thinking about how multi-national corporations could organise themselves to prosper were a truly multi-national pair: an Australian, who’d worked in London and Paris and now occupied a professorship in the US, and an Indian who’d studied in the US and was a professor in France.

Christopher Bartlett and Sumantra Ghoshal surveyed the way multinationals organised themselves and categorised when each of the structures would be appropriate. Their legacy is visible on our high streets, in our back-offices, in factories and in building services today. A huge proportion of the goods we use are sold by multinationals.

Christopher Bartlett & Sumantra Ghoshal

Christopher Bartlett & Sumantra Ghoshal

Christopher Bartlett

Christopher Bartlett was born in 1943, and grew up in Australia. He studies Economics at the University of Queensland, gaining a BA in 1964. He worked as a marketing manager for the Alcoa company in Australia, before becoming a consultant with the London office of McKinsey and Co, and then a General Manager in France, for Baxter Laboratories.

But academia called to Bartlett, and he travelled to the US, to do a Masters (1971) and then PhD (1979) in business administration at Harvard, joining the faculty of Harvard Business School in 1979. He remained there and is not an emeritus Professor.

Sumantra Ghoshal

Sumantra Ghoshal was born in Calcutta, India, in 1946. He studied Physics at Delhi University, gaining his BSc. From there, he worked from 1969 to 1981 at the Indian Oil Corporation.

In 1981, a Fulbright scholarship took Ghoshal to the US, where he took a an SM at MIT in 1983, then did something extraordinary. He worked on and completed two different PhD theses at two different universities, at the same time. He was awarded a PhD by MIT in 1985 and a DBA by Harvard the next year.

And in 1985, he took up a position at Insead, where he became Professor of Business Policy in 1992. Two years later, he moved to the London Business School to become Professor of Strategic Leadership. He remained there until his untimely death from brain haemorrhage in 2004.

Managing Across Borders: Strategies for Multi-National Corporations

Surveying 250 managers from 9 multinational companies, Bartlett and Ghoshal concluded that there are three principal models that multinationals followed:

The Multinational – ‘Multi-domestic’ – Corporation

The Multinational structure is a decentralised, federal organisational structure that focuses on local markets and has only loose central control. They later called this model ‘multi-domestic’, and is most responsive to local demand. The corporation looks most like a portfolio of different companies. Now, these will be seen as band portfolios in which the brands have a lot of autonomy and much of their own infrastructure.

Food and drink, and household appliances are products that most need this strategy.

The Global Corporation

The global organisation tries to gain maximum economies of scale by centralising as many of its functions as possible. This often results in brands sharing infrastructure and services, leading to a lot of strategic decisions being driven by functional expertise and priorities. Brands therefore become increasingly global and undifferentiated in local markets.

Plant and heavy machinery, technical equipment, and raw materials production are products that most need this strategy.

The International Corporation

Here, there is a lot more centralisation than in the multi-domestic corporation. But there is also more local autonomy than in the global model. One role of the centre is to facilitate knowledge transfer among the trading divisions, so they can share technologies and achieve economies, while making some of their own choices to optimise use of domestic supply chains and expertise.

Textiles, light machinery, and printing and publishing are products that most need this strategy.

A Fourth Model…

Bartlett and Ghoshal considered that these three models left open the possibility of a new, fourth structure. This would combine elements of all three, and they also assessed which of the four models would work best, according to two pressures:

  1. Pressure for Local Market Responsiveness
  2. Pressure for Global Integration

Their book on this topics, was the 1989 best-seller (often reprinted): Managing across Borders: A Transnational Solution.

Strategic Options for Multi-National Corporations - Bartlett & Ghoshal

Strategic Options for Multi-National Corporations – Bartlett & Ghoshal

When both pressures were high, their new model would be most suitable:

The Transnational Corporation

The transnational corporation is the most complex. It balances widespread global integration of technology and supply chains against the need to adapt products and services to local market preferences. It is supported by a strong central headquarters, that is able to move managers around to gain international experience and share knowledge.

Cars, consumer electronics, and pharmaceuticals are products that most need this strategy.

From Systematic Efficiency to Responsive Innovation

Bartlett and Ghoshal also discerned powerful shifts in the fundamental needs of a business strategy. Where Michael Porter had laid out strategies that would allow companies to win the largest share of a market, Ghoshal and Bartlett argued that corporations need a strategy to create value anew, and grow their market as a way of winning business. They said companies need to innovate their way out of market pressures, rather than push against them.

They also challenged the orthodoxy that began with the Scientific Management movement of Taylor, Gantt, Adamiecki, and the Gilbreths,  and then the efficiency drives of people like Ford and Sloane. Sloane’s approach of Strategy, Structure, and Systems became the McKinsey 7S model. But Bartlett and Ghoshal wanted to replace Strategy, Structure, and Systems by Purpose, Process, and People.

The three Ps were the new building blocks of a corporation. In a series of articles for the Harvard Business Review, they placed responsibility for each of these firmly on the shoulders of top management.

So here we are, in 2017. And our world is dominated by a range of global, multinational, and transnational corporations, whose focus is on process and whose mantra is people. Not a bad body of work to act as a symbol of what multinational collaboration can achieve!

W Chan Kim & Renée Mauborgne: Blue Ocean Strategy

So here are your primary strategic choices:

  • Exploit an existing market and beat your competition
    – or –
  • Find a whole new market where there is no competition

These two approaches have been championed by some of the greatest management thinkers and corporate leaders. W Chan Kim & Renée Mauborgne gave these strategies compelling names, and championed the latter in in a phenomenally high-selling book. They called it the Blue Ocean Strategy.

W Chan Kim & Renee Mauborgne

W Chan Kim & Renee Mauborgne

W Chan Kim

W Chan Kim was born in Korea, in 1952. After studying at the University of Michigan’s Ross Business School, he joined the faculty, becoming a professor. In 1992, he moved to the prestigious European Business School, INSEAD, in France, where he is The Boston Consulting Group Bruce D. Henderson Chair Professor of Strategy and International Management and Co-Director of the INSEAD Blue Ocean Strategy Institute.

Renée Mauborgne

Like Kim, Renée Mauborgne studied and taught at the University of Michigan Ross Business School. They moved together to INSEAD. Mauborgne is an American, born in 1963 (AVGY). The two have been long term collaborators, and their primary work together has been the research and writing about corporate strategy, which led to the concept and book, called Blue Ocean Strategy.

Blue Ocean Strategy

The 2004 HBR article, Blue Ocean Strategy, and the 2005 book of the same name are both best-sellers. The book’s sales are approaching 4 million. So clearly, if you’re a manager with any interest in business strategy, you need to know about this idea.

The concept is disarmingly simple.

A Blue Ocean Strategy sees a business finding a new market that is unexploited, and creating a market space for itself. Kim and Mauborgne’s metaphor is that Oceans represent market spaces.

They contrast new market spaces (blue oceans) with existing markets (red oceans). Companies that adopt a red ocean strategy focus on beating their competition and for this, an understanding of strategic concepts like Porter’s Five Forces will help.

The critique that Kim and Mauborgne level at red ocean strategies is that they often operate in crowded (or overcrowded) markets, offer limited opportunities for growth, and require lower profit margins. The bottom line impact of a red ocean strategy is, at best, conservative.

Instead of this ‘market-competing’ approach, they advocate a ‘market-creating’ strategy, which places an emphasis on ‘value innovation’. This strategy should see customer value increasing, while costs drop, because (in Porter’s terms) you are targeting differentiation, rather than cost leadership. Differentiate yourself, they say, by finding new demand that competitors cannot yet address, and meet it.

As you’d expect from two leading academics, Kim and Mauborgne have created a Blue Ocean Strategy Institute, which they co-direct, and built a suite of analytical tools for companies to draw down on.

Critique of the Blue Ocean Strategy

The first critique could equally be seen as an endorsement. Their idea is not new. Numerous business strategy thinkers have developed and published similar ideas, like Gary Hamel, C K Prahalad, Kenichi Ohmae, and even the venerable Igor Ansoff.

The second critique is harder for Kim and Mauborgne to shake. There is little or no empirical evidence that their strategy works, in the sense of creating lasting competitive advantage through its deliberate application.

Without a doubt, businesses have innovated throughout history, creating new markets from nowhere. And many of them have gone on to maintain dominant positions for many years. You cannot argue with the thesis that finding a Blue Ocean and quickly becoming the top predator there works. Their book is full of modern case studies.

But, who has read the book, decided to launch a blue ocean strategy, applied the tools, found some blue ocean, and created a dominant position?

The counter to this argument is: ‘it’s only been a few years’. But as time goes on, we are waiting for the evidence.

So, what is Blue Ocean Strategy?

Is it an innovative management theory that contains a deep new insight backed by rigorous research?

Or is it a brilliantly packaged re-casting of familiar and self-evident ideas, illustrated by a number of compelling case studies?

I leave you to judge.

 

 

 

 

Michael Porter: Competitive Strategy

Of all the strategic thinkers we have covered (like Igor Ansoff, Kenichi Ohmae, and Porter’s student, Kathryyn Rudi Harrigan), Michael Porter deserves a special place. His 1980 book, Competitive Strategy, transformed thinking, moving us from the pre-Porter world of strategic thinking dominated by Ansoff, to the post-Porter world that he still dominates.

Porter is an intellectual and an influencer who does not covet the easy quotability of some of his contemporaries. But the rigour of his analysis has made him all the more sought-after. His books have sold in the hundreds of thousands, and his speaking fees are legendary.

Michael Porter

Michael Porter

Short Biography

Michael Porter was born in 1947, in Michigan, and went to Princeton to study for a BSE in Aeronautical Engineering in 1969. He graduated top of his class and was inducted into the two most prestigious honor houses. He then shifted his focus to business, and went to Harvard Business School, where he received an MBA in 1971 and a PhD in Economics in 1973. From there he joined the faculty.

He remains at Harvard today, as a University Professor, and also Founding Director of Harvard Business School’s Institute for Strategy and Competitiveness, which he founded in 2001 to further his work and research.

Porter’s breakthrough came with the 1980 publication of Competitive Strategy. Other significant yet accessible books are The Competitive Advantage of Nations (1990) and the 1998 article and essay collection, On Competition. But these are among 15 other successful books and article collections.

But what you are interested in are Porter’s big ideas…

Michael Porter’s Big Ideas

Before Porter, Igor Ansoff dominated thinking on corporate strategy. His approach boiled down to choosing your market, matching your resources to meet the market’s demand, and then improving your competitiveness to increase your market share.

Michael Porter did not reject these ideas. Rather, he opened them out, approaching strategy from the perspective of the whole industry and then, later, as a national endeavour. He considered that earlier strategic thinking had become confused with simple (ahem) operational effectiveness. He argued that improving operational processes merely levelled out competitors, rather than giving them a differentiation that led to competitive advantage.

Let’s survey five big ideas that Michael Porter has given us. All remain core parts of any business education.

Primary and Secondary Activities, and the Importance of the Value Chain

Porter divided corporate activities into Primary Activities and Secondary Activities.

Primary Activities are the value chain from inbound materials to production operations, to outbound goods and their distribution, to the ‘far end of the value chain‘, marketing and sales, to customer care and after sales services. Here, Porter argued, lay the ground for competitive advantage. The key task is to integrate these into one value chain.

Secondary Activities are the business support functions, like IT, HR, Procurement, Facilities Management, and Finance. These cannot create competitive advantage They can merely enable efficiency, or act as a drag on the business.

Porter’s Five Forces

Corporations sit in a competitive environment, which creates five forces.

Michael Porter's Five Forces

Michael Porter’s Five Forces

Porter’s current view is that a company must aim to use these forces to re-cast the rules of its industry, in its own favour.

Sources of Competitive Advantage, and the Three Competitive Strategies

Porter argued that there are two sources of competitive advantage:

  1. Cost – being able to sell the same products or services at a lower price than your competitors, whilst maintaining profit margins
  2. Differentiation – being able to offer products and services which your customers want, but that your competitors cannot (yet) offer

This leads him to his three competitive strategies:

  1. Cost leadership – build the capability to produce at a lower cost than anyone else
  2. Differentiation – find a new product or service, or enhance what you offer to make it different
  3. Niche focus – find a profitable niche, and dominate it

Recently, we see competitors dominating their market with a fourth strategy, based on a third source of competitive advantage: deep loyalty. How does Apple dominate? Not by offering cheaper products, certainly. Although their supply chain efficiencies mean that their margins are exceptional.

And, some would argue, not by differentiation. Whilst they often lead for a short time here, their rivals also innovate, and certainly catch up quickly. Is there much a Mac can do that a PC cannot? Is there much an iPhone can do that a Samsung cannot?

And a company with as many and varied customers as Apple cannot truly be said to serve a niche.

No, I believe the source of Apple’s current dominance is largely the loyalty of its customer base, built on historic innovation, differentiation in multiple niches, and a reputation for excellence.

Diversification

Like Ansoff before him, Porter sees diversification as a shrewd strategy that spreads a corporation’s risk. This maybe through product development, or business acquisition.

In deciding how to diversify, Porter proposes three tests:

  1. Does the new industry, product set, or niche offer attractive returns on investment? Is there the opportunity to build differentiation or cost leadership?
  2. Is the cost of entry proportionate to the likely returns? If not, the risks are too high.
  3. Does the acquisition or the new venture leave the parties better-off? This is basically Ansoff’s concept of synergy.

The National Competitive Environment

In The Competitive Advantage of Nations, Porter fully articulated a line of thinking that placed national conditions at the heart of corporate success. A strong home base with good infrastructure and healthy competition grows successful global companies. Porter’s Diamond Model sets out four factors that affect a nation’s industries.

Michael Porter's Diamond Model

Michael Porter’s Diamond Model

Michael Porter on Competitive Strategy

An old, but excellent video of Porter describing some of his main ideas.

You might enjoy the Strategy Pocketbook

… and the following earlier Pocketblogs:

 

King Camp Gillette: Disposable Goods

The terms ‘Utopian Socialist’ and ‘Captain of Industry’ are rarely applied to the same person. But they are both sound descriptions of King Camp Gillette. Yet the revolution Gillette arguably led at the sharp edge (!) is not taking us towards a utopia. Far from it. The inevitable consequence of his successful business strategy is a world of depleting resources and growing land-fill.

King Camp Gillette 1855-1932

King Camp Gillette 1855-1932

Short Biography

King Camp Gillette was born in Wisconsin, in 1855. His father was a patent agent, inventor and entrepreneur, who encouraged Gillette and his brothers to tinker and make things too.

The family moved to Chicago and then, after losing pretty much everything in the Great Fire of 1871, to New York. There, Gillette started his business career as a travelling salesman. After a series of jobs, he ended up at the Crown Cork and Seal Company. There, his boss, the company’s founder, recognised Gillette’s ambition to build a business of his own. His advice was:

‘Invent something people use and throw away.’

The Disposable Razor Blade

We all know how that bit of the story ended. The safety razor was already becoming popular in the United States, but still needed to be sharpened frequently. Gillette wondered if he could produce a blade cheaply enough for men to use it until it was dull, and then throw it away and use a new one.

It turns out, he couldn’t at first. So he sold his blades at below cost price, until he could get the manufacturing volumes high enough for the cost price to drop. Gillette had also invented the handle, and his second great innovation was to stop trying to make money on the razor itself. Instead, he gave it away, as a means to tie users into his blades.

So:

  • Disposable products that people need to replace regularly
  • Loss-leading accessories that tie users into the consumable items

Built-in Obsolescence, and a Product Eco-system

Today we’d call these ‘built-in obsolescence, and a product eco-system’. But the formula was phenomenally strong. So strong, in fact, that it was widely emulated – especially once Gillette’s patents expired.

Gillette also initiated the third pillar of the modern shaving business. He was constantly introducing minor innovations and improvements to keep ahead of his competitors – double edged blades, and then tin bladed razors.

Contemporary Corporate Strategy

In a market dominated by a few big players (Gillette among them), the demand is necessarily pretty static (the male population – particularly in affluent nations is not growing, and neither are we growing second heads). In the BCG Matrix, these are ‘cash cows’ – highly profitable lines with minimal growth prospects. All a company can do is defend against its rivals and try to steal some market share. So the strategy of constant incremental improvement remains to this day.

As, obviously, does the Gillette brand. Gillette himself resigned from the business in 1931, due to ill health, but it has retained his name to this day. It is now owned by Proctor and Gamble as one of over 20 global consumer brands. But that’s another business strategy entirely.

Utopian Socialist

Gillette lost a lot of his millions to the Wall Street Crash, but maybe he was okay with that. He wrote a number of books that set out a Utopian ideal for a world of no competition, no wars, and benign monopolistic corporations providing employment and welfare. That’s a dream that still lives on at one end of the political spectrum. Perhaps it’s sad that creating this utopia is not what Gillette is remembered for. Instead, we remember him for the disposable razor blade. Oh well, now I’ve finished this article, I’d better go and have a shave.

Gary Hamel: New Strategist

What is the meaning of corporate strategy? Is it about getting to the front of the queue, keeping your place in the queue, or is it something different. Gary Hamel, once considered by Forbes Magazine to be ‘the world’s leading expert on business strategy’ might argue it is starting the next queue.

Gary Hamel

Gary Hamel

Very Short Biography

There are very few biographical details about Gary Hamel available. He was born in 1954, attended Andrews University. His first job was in hospital administration, but he soon started a PhD at the University of Michigan. There he met long-term collaborator, CK Prahalad. In 1983, Hamel joined the faculty of the London Business School, where he has remained to this day.

However, in 1993, we transferred from a full-time to a visiting professorship and moved to Silicon Valley, co-founding a consultancy firm, Strategos, a couple of years later, with Prahalad. This timing was clearly linked to the publication of their landmark Harvard Business Review (HBR) article, Competing for the Future in July/August 1994. It was followed later that year by the book of the same name, Competing for the Future, which became a massive seller.

This set Hamel up for a string of high-selling books, prominent HBR articles, prestigious consulting assignments, and eye watering fees on the conference circuit.

Following the sale of Strategos in 2008, Hamel founded the Management Innovation Exchange. This is an online community dedicated to innovation and disruptive thinking, that very much chimes with Hamel’s approach to strategy as disruptive. He remains influential and sought after and, as a relatively young man, seems likely to continue to influence strategic thinking for  a number of years.

Hamel’s Big Ideas

What are the ‘Big Ideas’ that managers need to be aware of? And, in particular, how can we separate out Hamel’s ideas from those of long-term collaborator, CK Prahalad, whom Pocketblog has already covered?

Here, I’d like to focus on the flavour of the ideas that seem more to arise from Hamel’s thinking. But I must emphasise that I have no insight into how the two work together andI am aware I may be misinterpreting, so welcome comments.

Core Competencies

The first big idea that Prahalad and Hamel put forward was that of core competencies. Corporations need to stop focusing on what industry thy are in, and start looking at what they can do well, as their source of competitive advantage. Hamel is fond of citing examples like Amazon and Apple, who are in the retail and consumer electronics industries respectively… or were.

Now, Amazon is a dominant player in provision of web servers, cloud storage, and data processing, whilst Apple makes much of its money today as a music vendor and software marketplace provider. It was the asset bases and the skill-sets of their people that allowed each business to grow into new markets and achieve a dominance there.

It seems to me that these examples illustrate Hamel’s particular contribution – he favours taking contrarian lines and looking for the surprising, disruptive directions of thought.

Strategic Intent

Prahalad and Hamel charted a shift in corporate strategy from the 1960s and the focus on portfolios and selecting winning product sets, to the 1980s and the focus on efficiency, continuous improvement, cost-cutting and re-engineering, and Total Quality Management (TQM) – all as means of tweaking the corporation to ever better incremental performance levels.

In the 200s, the focus needed to shift again, and in 1994, they foresaw this, under pressures of globalisation, technology shifts, changes in customer expectations, deregulation, and new entrants into markets. Corporations would increasingly need to answer long term questions about where they will be in the future. And if they don’t have the answers, then someone would surely displace them.

Companies, Hamel and Prahalad said, should no longer seek to optimise their position within a fixed market, but should rather either change the rules of their industry altogether, or go and find new markets to conquer.

Hamel distinguishes between:

  • Rule Makers
    These are the founders of their industries, who built dominance by an audacious and concerted move into a new or emerging space. Henry Ford, whom we covered two weeks ago is a great example.
  • Rule Takers
    These are the fast followers – companies that copied successful Rule Makers and also built a strong presence in the same market, largely by taking an established formula, and applying it well. Some would never catch up their rule maker. Others would find substantial improvements or deploy sufficient hunger, to overtake the incumbent leader.
  • Rule Breakers
    These are businesses that disrupted the rules by which the incumbents play. They do things sufficiently differently to rock the market and change it forever. Some have been driven by technological advances, but others have been equally radical by simply applying new thinking. Virgin Airlines and then EasyJet each disrupt the British Airways near-monopoly n the UK, for example.

Strategy as Revolution

Nowhere is this clearer than in Hamel’s 1996 solo HBR article, ‘Strategy as Revolution‘. It seems to me that this article really set the scene for ten years later when Hamel co-founded the Management Innovation Exchange (MIX). Here, he put forward ten principles to consider, if you want to create a truly innovative strategy. I’ll pick out four:

  1. Distinguish between ritualised, calendar-driven strategic planning from the true practice of challenge and investigation that leads to real strategy.
  2. Harness revolutionary ideas throughout the company, because many of the staunchest defenders of old and comfortable orthodoxies are at the top of the organisation.
  3. Don’t worry about making change. Instead, focus on engagement with the people who can make the change happen.
  4. Embrace surprise: you don’t need to plan the whole route or even be sure of the ultimate destination. The direction is the strategy.

Conclusion

It’s too soon to write a conclusion on Hamel. His focus on disruption has helped many businesses change, but it is not clear whether he is riding the wave, or controlling the wave machine. If you want a constant stream of stimulation and challenge though, it is well worth checking out and even participating in his Management Innovation Exchange.

Alfred Chandler: Business History

It’s just a few people who could claim to have invented an academic discipline, but one who could, with some justice, is Alfred D Chandler. He was a historian who studied business, and in so doing, he inferred large historical patterns that still inform our thinking.

Alfred Chandler

Alfred Chandler, 1918 – 2007

Short Biography

Alfred DuPont Chandler was born in 1918 into a Delaware family that had commerce in its blood. In one branch of his family was grandfather Henry Poor, of Standard and Poors, and in another was the duPont family. He studied for a Masters degree at Harvard College before the war, where he was a friend of John F Kennedy. After service in a non-combat role, he returned to Harvard to finish his Masters and earn his PhD with a study of Henry Poor and the coming of the American railroads..

An appointment to MIT allowed him to study more large corporations in depth. His analysis of duPont, General Motors, Standard Oil, and Sears Roebuck & Co led to the publication in 1962 of the first of his three most noteworthy books (among over 25 in total): Strategy and Structure.

He also worked for a while at Johns Hopkins University, before returning Harvard in 1970, as the Isidor Strauss Professor of Business History at the Harvard Business School. There, he wrote his second major work, 1977’s The Visible Hand: The Managerial Revolution in American Business. This exceptional work won Chandler the Pulitzer Prize for History, and was the first business book to be recognised with a Pulitzer Prize. The title is a deliberate reply to Adam Smith, whose ‘invisible hand’ is the market. We’ll see what Chandler was referring to in a moment.

In 1990, Chandler published the last of his three major books, Scale and Scope: Dynamics of Industrial Capitalism. In this he shows that it is not just scale of operations that bestows big economies and hence competitive advantage. It is also scope – capturing a diverse spread of markets early on. Uncharacteristically, Chandler looked to economics and borrowed the term ‘first mover advantage’.

Having retired from the Harvard faculty in 1989, Chandler continued to work, write and comment on changes in business, and was a visiting professor at numerous institutions. He died in May 2007.

Themes of Alfred Chandler’s Work

Chandler’s approach of wide-ranging comparative analysis to find historical patterns of evolution and change initially encountered a lot of resistance from the academic business community. These academics favoured using economic and quantitative analysis to build their theories, but Chandler was able to change many (though not all) attitudes. Today’s business school focus on case studies and the rise to prominence of academics and writers like Jim Collins.

Strategy before Structure

The primary thesis of Chandler’s ‘Strategy and Structure‘ is that strategy must come before (and therefore dictate) the structure of the corporation. His historical observations led him to conclude that market forces need to drive shifts in the way organisations evolve, and he was able to predict the increasing trend for decentralisation that continues, in the largest businesses, today.

More recently, academic and business commentators have disagreed. Tom Peters observes that it is structure that determines which strategy a corporation will select, and Richard Tanner Pascale argued that Chandler assumed that organisations act rationally. They don’t, and he also notes that organisational structures play a big role in shaping strategy.

Trust Gary Hamel to sort it out, by seeing the subtlety of the competing views. He notes that the two are intertwined: new challenges lead to new structures, and new structures present new challenges. He concludes:

‘Few historians were prescient. Chandler was.’

Arguably, Chandler is, along with Igor Ansoff, one of the founding advocates of the study of business strategy.

Professional Management

Chandler also charted the rise of professional management; first in Strategy and Structure and then, more fully, in The Visible Hand. He saw managerially led corporations in the US rise with the growth of the railways and the need for complex, geographically-spread, systems. These first arose within the railway companies, and then in the corporations that grew nationally, due to the opportunities that long-distance transport offered.

It was the visible hand of an organisation’s managers that replaced Smith’s invisible hand of the market as a major driver of the structure of a modern business.

Further Reading

I rarely cite another website for further reading about our Management Thinkers, but in this case, I am compelled by the excellence of the article at the Strategy + Business site. I have deliberately avoided borrowing from it. If you are interested in Chandler, this should be your next port of call.