The Strategy Paradox: Why Committing to Success Leads Corporations to Failure (And What to Do about It)
By Michael E. Raynor
What’s the opposite of success? According to Michael E. Raynor, distinguished fellow with Deloitte Consulting LLP, it is not failure, but mediocrity. In The Strategy Paradox: Why Committing to Success Leads Corporations to Failure (And What to Do about It), he makes a persuasive case that both success and failure result from firms’ making powerful commitments to particular courses of action whose efficacy is uncertain. If they do not make these commitments, the result is likely to be mediocrity. This is the essence of the strategy paradox: To capture value, a firm’s strategies must resist easy imitation by others; products assembled from off-the-shelf components, for example, can be widely copied. Those based on proprietary technologies developed over time, however, are difficult to emulate, because of the commitment and persistence required. But this very commitment to actions that may ultimately turn out wrong places the strategy at risk of failure.
Traditional thinking about corporate strategy has emphasized the powerful continuity between strategy making, or formulation, at the top of the organization and operations, or implementation, at the bottom of the organization. Although this relationship, and indeed the ability of the corporate office to formulate powerful strategies, has been questioned, critics have rarely been able to suggest with any clarity what the role of the corporate office should be and how it should fit with the activities of the firm’s operations. Raynor’s research and conceptual framework fill this gap. He suggests that the role of the corporate office in a multidivisional firm is to deal with strategic uncertainty — strategic risks and opportunities — through the use of what he calls “real options,” whereas the role of the operating divisions is to focus on extracting value from the options that are exercised. This combination of activities can create strategic flexibility through the use of scenarios designed to anticipate the future, the formulation of optimal strategies to address various possible futures, the determination of the options needed, and the management of a portfolio of such options. Whereas traditional strategy posits prescient senior executives picking winners before the start of a “horse race,” the process Raynor advocates is akin to placing bets on a horse race well after the start: Executives identify winning scenarios but withhold commitment until the pool of likely winners shrinks, maximizing the chances of a successful bet.
The author’s recommendations are amply backed up by both theoretical and empirical support from telling re-analyses of classic corporate duels, such as the struggle in the VCR market between Sony (Betamax) and Matsushita (VHS). Betamax was a failure despite Sony’s inspiring vision, customer focus, superior technology, careful analysis, and flawless execution: The market developments that laid it low — unexpected network effects of the movie rental business, abetted by the torrid increase in the production and distribution of adult titles — were unforeseeable, and Sony failed because it had committed too early, before these events unfolded. Trying to make sense of the concept of corporate strategy over the past 50 years has been a bit like looking through a child’s kaleidoscope — every turn has revealed a glimpse of new colors and relationships. With this book, Raynor has made considerable progress toward presenting us with a more comprehensive framework that, while preserving parts of the old, has presented corporate strategists with an exciting vista of the new.permalink.