06 Aug 2012  Research & Ideas

Strategic Intelligence: Adapt or Die

In his new book, Strategic IQ, Professor of Management Practice John R. Wells explains why adapting to changing circumstances isn't only smart, it's also a matter of survival.

 

Sometimes when John R. Wells, a professor of management practice at Harvard Business School, meets a senior manager from a successful company, he likes to ask the provocative question, "Is your company already dead?"

Strategic IQ: Creating Smarter CorporationsIn his more than 35 years as a student, practitioner, and teacher of corporate strategy, Wells has learned that the seeds of failure are often planted years before they sprout, and only by overcoming complacency and constantly adapting to the changing competitive environment can companies prosper in the long term.

In a new book, Strategic IQ: Creating Smarter Corporations, Wells collects case studies from companies that have learned this lesson—some of them the hard way—and explains how all companies can strategize more intelligently.

Michael Blanding: Why did you decide to write a book about strategy?

John R. Wells: We live in a world where we laud great, successful companies and then watch them suddenly collapse. When they do fail, it's incredibly disruptive to employees, shareholders, and communities. I was intrigued by this common problem, and I wanted to take a look at pairs of successful companies where one collapsed and the other didn't. I wanted to essentially use history as a research tool to understand why some succeeded on an ongoing basis and others failed.

Q: What do you mean by the term "strategic intelligence," and why is it so important?

A: I define strategic intelligence as the capacity to adapt to changing circumstances, as opposed to blindly continuing on a path when all the signals in your competitive environment suggest you need to change course.

When I've looked more carefully at why companies fail, oftentimes they see a problem but their structure gets in the way. They've invested in assets—which could be physical assets, people assets, or relationship assets—that they find difficult to change and that creates a structural inertia. Ultimately, it's the people in a company who are intrinsic to both developing and executing good strategy, so I called that capacity "strategic IQ" to emphasize that only by looking at our individual and social behaviors can we measure how effectively we adapt.

Q: Why do you say the goal of a business is to achieve superior sustainable performance?

"I wanted to take a look at pairs of successful companies where one collapsed and the other didn't."

A: By performance, I mean return on investment; by superior I mean more value than your competitors. If you create more value than your competitors over time, then you will attract more investment in a virtuous circle that makes you more sustainable in the long term. Unlike human beings, whose time on this planet is finite, companies have the capacity to continue and create institutions that fulfill obligations to constituencies for many years, so the focus of corporations should be on the very long run rather than simply on the short run.

Q: You were a strategic consultant for many years, yet you argue that companies shouldn't rely on consultants to develop their strategy. Why is that?

A: It's a good idea for companies to seek out support in developing strategy, but not to delegate responsibility to an outside consultant. My thesis is you should be continuously developing your strategy—it's not a one-shot deal. Most companies use consultants to set a new strategy and then get on with it and start executing—until the next time they need a new strategy.

Q: How can a company always be changing without creating chaos or overwhelming employees?

A: Let me give you an example. Danaher, a company in the United States, identifies the final strategic imperatives it is trying to achieve and then translates them into action plans. At the end of each month the management team steps back and says, "Do our strategic imperatives make sense, and how can we do even better than we are doing based on our current strategy." Companies think strategic change is this huge process they have to go through. But if you regularly review what you are doing, then that keeps the tasks from getting bigger and bigger to the point where it gets overwhelming.

Q: You cite Circuit City as a classic case of strategic inertia. What did it do wrong?

A: In the 1980s Circuit City discovered a good business model and started rolling it out across the United States. The company was growing very, very fast-20 to 30 percent a year. Best Buy, which was doing more or less the same thing, was getting killed. So in the late 1980s, Best Buy decided to introduce a new deep-discount business model that eliminated a lot of labor costs and storage space.

For the next 10 years, Circuit City ignored this despite the fact that it gave Best Buy a 10 percent cost advantage. Circuit City expressed concern in its annual reports for a decade, but never did anything about it. By 2000, its profits had collapsed, and at that point it was impossible to do anything about it until the company finally went bankrupt in 2009. That's why I always say profits and sales will continue to grow long after you've caught the disease; but the time it starts to show it's often too late.

Q: How can strategic business components help companies be more flexible in their strategies?

A: For many years, companies have recognized that small units are far more effective than large units. I think the explanation for that is in human behavior. There is interesting research that humans are able to self-organize and become very effective without formal bureaucracy in units of up to 100 to 150 people. If you can create components and then effectively create bridges between them and instill a common human purpose then you are leveraging natural human behavior rather than trying to suppress it with systems and procedures that fly in the face of the way we naturally operate.

Q: In the book, you delve heavily into the fields of sociology, behavioral psychology, and even neuroscience. What made you interested in these areas?

A: One fundamental belief I have is that you can't separate strategy formulation from strategy implementation. You can't discuss changing strategy unless you are ready to discuss what makes people resist change and what part people could potentially play in creating more adaptability in an organization. The people on the front line of an organization are often the first ones to see that change is required. It takes ages for that message to reach the top management, and then it takes a response ages to get back down to the front line and by then it's maybe too late.

I wanted to try and understand why some structures work more or less efficiently, so I said let's look at other disciplines to see what light they cast on what's going on with the way people's brains evolved and how they operate.

Q: Throughout the book, you highlight companies such as Capital One, Whole Foods, and Li & Fung as examples of high strategic intelligence. What do they have in common that makes them successful?

A: If I had to summarize very quickly, I'd say they have a pretty clear strategy, but they are not satisfied with it. They are always trying to improve it and look for alternative ways of playing the game. So it's an issue of not being satisfied and also being creative. On the structural side, they have very adaptive organizations, and on the people side, strategic intelligence is distributed throughout the organization. So they typically have structures that support such adaptive behavior, they seek out people who are open to change, and then they encourage them to change continuously.

About the author

Boston-based writer Michael Blanding is a fellow at the Edmond J. Safra Center for Ethics at Harvard University and author of The Coke Machine: The Dirty Truth Behind the World's Favorite Soft Drink.

Comments

    • Said Othowa Elmi
    • Senior planner, Young Muslim Association

    Strategic inteligence is what all companies need,and i would like to know whether there is skill or specialization for this?for instance there is project planners personnel and as you said"Unlike human beings,whose time on this planet is finite,companies have the capacity to continue and create institutions that fulfill obligations to constituencies for many years.This can be achieved if only there is developmental programmes as well as well fashionable resource.

     
     
     
    • Anonymous

    Although slightly modified, a person could create a whole career applying these concepts to major Universities across the US. Many are in denial regarding strategy changes that will be needed to take them forward into the next decades. Their antiquated systems and top-down, insular management styles will continue to allow new competitors to capture their markets for higher learning. Their egos and lack of innovation will continue to open new markets for the "for profit" organizations.

     
     
     
    • Seena Sharp
    • Executive Director, Sharp Market Intelligence

    Making strategy an intrinsic and "easy" component of daily business thinking provides a competitive advantage, as Professor Wells states.

    The one piece that is almost always missing in discussions about strategy is "What is the basis for that strategy?" It's not enough to internally develop strategy. Companies can have a brilliant strategy but not get the results they're expecting.

    That's due to the strategy not including the crucial external perspective of today's reality. Without a current, objective, and sufficient understanding of what's true today and what's emerging, the strategy will be based on yesterday.

    You wouldn't buy a new car based on Consumer Reports Automotive Issue from 2008; why would you develop strategy based on experience, assumptions and intuition - all of which reflect the past. Yes, they have their place - but current input trumps the past.

    That's the value of market and competitive intelligence - to reveal what's changing and emerging.

    Seena Sharp Sharp Market Intelligence Author, Competitive Intelligence Advantage

     
     
     
    • cyrus Kihoro
    • Strategic Account Manager, G4S Kenya

    This is a very informative write up. I congratulate the author for a well researched and interesting article.

     
     
     
    • Kapil Kumar Sopory
    • Company Secretary, SMEC(India) Private Limited

    It is common sense that there is bound to be decay if anything is not cared for and nurtured on ongoing basis. It applies to personal assets such as house, car, electronic gadgets, etc. Besides taking care of upkeep, one needs to take timely steps to change as per emerging circumstances affecting additions, alterations and replacements as necessary. We, therefore, need adequate cabality to adapt to the changes occuring day in and day out. Much more important is similar actioning in organisational sphere. Here, the management has got to keep eyes and ears open and respond dynamically to any indicators towards any emerging cause of concern. Not ignoring what the stakeholders directly or even indirectly indicate and taking timely corrective steps is a must. Relaxed attitude when things do not seem to be that bad is going to be counterproductive. Acute importance of feedback and regular performance and business reviews needs no emphasis; all good organisations are attuned to this and hence they go on and on. Complacency is a curse. We cannot bask in the glory of past laurels and remain passively satisfied that all would be likewise always. The reality is that working environment is prone to change too fast for an inactive organisation to understand. And, when it does, it is too late.

     
     
     
    • Abdoulaye Mbengue
    • Managing Director, Business Mgt Coaching

    Very insightful article. Thanks for highlighting the importance of adapting strategy to the constant changing of the environment, but mostly for reinforcing the absolute necessity of integrating strategy formulation and execution.

     
     
     
    • N.Chakrappani
    • Director, Business Mind Consulting

    Dr.Wells's views on companies such as Capital One, Whole Foods, and Li & Fung are very relevant. The source locations where to look for ways of trying to improve as well as look for alternative ways of playing the game are the supply chain side on the one hand and the customer side on the other.

    The organization just occupies the middle place and it has to cater to the needs of its customers by constantly getting the feedback through the grapevine as to what is happening at the grassroots level. The supply chain side offers even more relevant and valuable insights as to what they are up to in their R&D. So, if some product is in its advanced stages of development and is soon going to be introduced in the market, this organization must jump up and explore ways and means to integrate that new product into its product portfolio before some of its customers demand this new product - it may be a component that is going to be used in the manufacturing processes of this company. At the same time, educate the customers about the possible new introductions in the market and prepare the discerning customers as to what new products that this company is likely to introduce in the market. So where is the question of failures of the sort of Circuit City?

    An example may be, using the most up-to-date Intel microchip in the computers manufactured by this organization.

    Developing and maintaining good synergy with the supply side and smoothening the customer side with the contemporary developments in the supply side would keep this company always relevant and make the product the most up-to-date.

     
     
     
    • Andrew Llanwarne
    • Owner, IDEAction

    This is a subject that is increasingly important as the business, policy, technological, societal and environmental contexts are changing more rapidly and unpredictably than ever. But by using scanning and scenario planning techniques, and listening to feedback from customers and partners, we can get more sense of what the future challenges and opportunities for our organisation are likely to be.

    There is also a crucial link to knowledge management. In working with organisations on strategic intelligence, I have seen how senior management is often overloaded with the wrong kind of management information which drags them down into detail at the expense of a wider and more strategic overview. Strategic intelligence should be carefully designed and presented to meet the needs of the decision-makers, who usually have too little time to consider important issues in detail. It should distill the essential information from the business and from customers, combined with insights from key personnel and a summary of external trends, so that senior managers can quickly appreciate the important issues and take the appropriate decisions for long-term success.

     
     
     
    • shadreck saili
    • UCT

    Prof Wells I agree with you in the manner you have methodically explained strategic intelligence and how relevant it is and can be to keeping an institution afloat. I would however illustrate some experience on the Human aspect in the strategic intelligence. While it is true that the vision bearer in an institution is top management, i.e. CEOs, depending on the structuring of an institution, i.e. quasi government, private Inc. who influences it, matching the vision bearer's personal strategic intelligence with that of the institution he/she is managing is very important. Any conflict between the two eventually results in the fall of the institution. I have come across vision bearers that have performed extremely well in one institution and as a consequence "poached" into another but have failed lamentably to steer growth in another company of similar business. After some research on such cases, it revealed that there was a great mismatch between the personal and institutional aspirations. Greedy and don't care attitude become apparent. I therefore strongly feel institutional strategic intelligence is the product of personal strategic intelligence of a vision bearer. Adaptation is easier when the two match and the opposite will certainly bring about "death" of the institution or the vision bearer

     
     
     
    • Hugh Quick
    • home, none

    I think it was in school biology that I was taught that an organism must adapt to its environment or die.

     
     
     
    • nosap
    • resourcerer

    No such thing as strategic intelligence. Strategy is teleological, pick it and plot a way to get it. The closest intelligence is socience (social intelligence) understanding connections. But then strategy is only useful when outcomes are predictable. So unless you have a crystal ball, tactics are more useful in the real world and that's all about purposeful experimentation and salience (classic mental intelligence).

    Tactics and strategy are not mutually exclusive and tactics are not dependent on strategy, due to irreversibility. No wonder strategy rarely works, few people know what it's really for - fortunately there's several hundred years of wisdom amongst the zen and taoist brigade that predates the mechanistic rationalism and pseudo religious dogma that most modern business strategists depend on.

     
     
     
    • Jose F Bezerra
    • Analyst, HSBC Global Technology Brazil

    Strategy reflects expectations about the future, not results from the past. Strategy is related to how the vision will be implemented. One thing that is currently neglected from both authors (the strategy-oriented company defendants and the market-oriented company) is how to truly have a useful vision for the company, how to not fall into the trap of using vision as a "motto" only. Vision is related to how might the strategy happen in the future. Vision is strategy.