The Strategy Paradox: Why committing to success leads to failure (and what to do about it) |...

The Strategy Paradox: Why committing to success leads to failure (and what to do about it) | Michael E. Raynor | Great Examples, Provoking Ideas, Sound Advice

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The Strategy Parad...

	The Strategy Paradox: Why committing to success leads to failure (and what to do about it) Michael E. Raynor Doubleday Business, 2007 - 320 pages average customer review:based on 35 reviews view larger image
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highly recommended

Excellent - Bridging from theory into practice

The Strategy Paradox provides one of the few traversable bridges between strategy theory and practice.

The book's theoretical foundations are solid and presented cogently by Raynor. While Raynor's theoretical discussion and empirical evidence are reassuring, his book's most important contribution is a very usable strategy development framework. By introducing the concept of risk and real options formally into the strategy development process, Raynor provides managers, like me, the much needed toolkit for strategy development in dynamic and uncertain markets. Raynor has provided clear guidance on how, when, and who from various organizational levels should be engaged in strategy development. The book also highlights how unwavering commitment to a strategy can lead to overconfidence, over-commitment, and higher risk. Raynor has shown how a firm's adaptability and strategic evolution needs to be monitored regularly to keep pace with the market's changing risk and opportunity profile.

This book has made me rethink how we approach strategy development, question what we truly know about our markets, explicitly acknowledge the market risk, and highlight the mutually exclusive choices we're making as we put our strategy into play.

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Great Examples, Provoking Ideas, Sound Advice

Raynor offers a fresh and compelling consideration of the role of uncertainty in corporate strategy. Through a series of well researched examples he challenges the conventional wisdom regarding how corporate leaders should think about uncertainty. According to Raynor, "successful strategies must be built upon uncertainty, not in spite of it." Raynor outlines how his new approach to thinking about uncertainty can be incorporated into existing strategic planning processes and tools. Through a delineation of the roles of the corporate and divisional offices in the strategic planning process and a thorough discussion of the use of "real options" as a strategy tool, Raynor offers practical advice to those seeking to ameliorate their strategic planning capabilities. Raynor thereby presents corporate leaders with an approach to respond more effectively to the uncertainty and commitment paradox that is thoroughly considered in his book. The Strategy Paradox is a must read for anyone involved in strategic planning.

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Master communicator

I have read Raynor's previous works, heard him speak and have throughly enjoyed The Strategy Paradox. As a business owner and author I have a personal bias towards practical information that is sticky. Raynor is a master communicator on the platform an in print. I highly recommend his books and speeches.

Challenging Traditional Notions of Strategic Planning

Michael Raynor brings a fresh perspective to the field of strategy. This book stands out amidst a crowd of management books, many of which are all style and no substance. This one is surely substantive - a serious book for seasoned managers and thoughtful scholars. "The Strategy Paradox" offers a well-argued critique of traditional strategic planning approaches, backed with interesting examples and rigorous logic. Raynor argues quite persuasively that managers should spend less time trying to predict the future in mind-numbing detail through the forecasting process. Instead, they need to think carefully about how to create and preserve strategic options in a highly uncertain world. Moreover, Raynor argues that senior manages need to think much more carefully about how to manage risk, given the ambiguity that surrounds most strategies. If you are looking for a simplistic five-step program for instant business success, this book is not for you. If you are looking for a logical and insightful book that makes you think differently about your business, then this book is definitely for you.

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Sensible advice, problematically packaged

I struggled to like this book more, to the point of exchanging many emails with its author Mike Raynor (MR) to clarify points that I didn't understand. Unfortunately, even this effort wasn't enough to enable me to share the enthusiasm of prior reviewers - despite the facts that the book has at its base some good common sense, and that I was very favorably impressed by the author during our correspondence. My concerns are roughly as follows:

(1) At least some of the case studies are "just-so stories" (i.e., somewhat fanciful and overly neat explanations) that variously (a) are not consistent with my direct knowledge and experience about company concerned, (b) are not generalizable, or (c) don't clearly demonstrate the result claimed (=> minus 1 star);

(2) The book foregrounds jargon and trendy concepts, such as real options theory and physics metaphors, that are neither sufficient nor necessary to be useful (=> minus ¾ star); and

(3) Processes described in the book mandate a great deal of division of labor among levels of management and groups within the company, and so are difficult to implement outside of a large multidivisional company that is the target client of the author's consulting firm (Deloitte) (=> minus ½ star).

In the rest of this review, I'll elaborate on points (1) and (2).

CASE STUDIES:

(a) TIDY STORIES: MR spends a lot of time at the beginning of the book discussing Sony's failures with various products, including Betamax and MiniDisc players. The point of these stories is to illustrate that despite "brilliantly conceived and executed strateg[ies]" (@ 37), Sony's strong commitment to particular strategies placed it at greater risk of shipwreck in the event of a "perfect storm" of unfavorable external circumstances. The case study is filled with descriptions of Sony's state of mind, e.g. that Sony's commitment to content/device synergy was made "only because a *failure* to make a similar commitment was felt to have been a contributing factor to the demise of Betamax" (emphasis in original; @ 40).

I was not at Sony during the development of Betamax or the MiniDisc. But I was an executive there during a more recent period (during chairmanship of N. Idei) when the company was trying to develop an online music business and portable digital music players, and was grappling with such issues as whether to use the MP3 format or a proprietary file format. The attitude towards Betamax - and toward content/device synergy decisions generally - that MR describes is unlike any that I ever heard while at Sony. Moreover, "brilliant" is not a word that I could reasonably use to characterize the content/device synergy decisions being taken during that era. I say this not only with hindsight (a couple of months after I left, Apple launched the iPod and iTunes) but also considering the reaction I received when I explicitly raised this issue at a management meeting in Tokyo.

The extreme mismatch between MR's description and my own experience prompted me to write to him, asking if he had interviewed Sony executives in developing his case study - I figured it was possible that he could have had higher-level access than I did. The very forthright answer I received was that no, he had not. (See also @ 272, n.1.) His account is based entirely on secondary sources and inferences he drew therefrom. That account makes for a good story. But it doesn't serve as a veracious example of a "brilliant" strategy done in by the unforeseeable.

In effect, what MR has done is to create a successor to the "Honda case", famous in management literature. In the 1970s, Boston Consulting Group was asked by the British government to advise on how to revive the UK's motorcycle industry. Looking at Honda's successful introduction of lightweight scooters into the US market in the 1960s, BCG waxed on at length about Honda's deliberate positioning, innovative skill and deliberate strategy of selling at a loss to generate market share. In the 1980s, another researcher went to Japan and actually interviewed the two guys who set up Honda's branch. Honda's actual intention had been to introduce heavy, Harley-type cycles. The scooters were less than 25% of the initial inventory brought from Japan. But the scooters caught dealers' attention when the Honda staff used them for making customer visits; and when the big cycles started to break down, the Honda guys had no choice but to sell the scooters. I.e., it was just luck, not deliberate planning. Nonetheless, one of the BCG authors later defended BCG's study because the truth could not have resulted in "useful" advice to BCG's customer. (See, e.g., R. Rumelt, "The Many Faces of Honda", A. Mair, "Learning from Japan?", as well as articles by Gould (BCG), Mintzberg and many others.) Unlike BCG, MR isn't restricted as to what industries he draws his cases from. Assuming his advice is sound, couldn't he have found a better-documented case? So caveat emptor, unless you like to pay to be told what you want to hear.

(b) LACK OF GENERALIZABILITY: Chapter 7 of the book includes three case studies of companies implementing option-based strategies: Messier, Bell Canada Enterprises and Microsoft (apropos of MSNBC and XBOX). In MR's words, the most effective of these at implementing an option-based strategy was Microsoft; the other two companies failed, for different reasons. MR attributes Microsoft's success to the uniqueness of Bill Gates (@168). But having monopoly power and >80% market share doesn't hurt either. I submit that the mature Microsoft is not a very instructive example from which to learn strategy unless your company enjoys similar monopoly power in its industry (or, considering MR's point, is run by Bill Gates).

(c) DON'T DEMONSTRATE POINT: Two examples: In Chapter 8, MR presents the case of Dave Holveck, president of Johnson & Johnson's corporate venture capital arm, JJDC. MR describes how Holveck arranged the internal politics of J&J's structuring and funding of certain venture investments. However, Holveck took his position in 2004, and the investment described has a 6-year horizon - it's too early to count this as a success story for MR's proposed use of an option-based strategy. In Chapter 2, MR mentions that in developing Betamax, Sony made a conscious decision for its improved, BII version not to be back-compatible with the original (so-called BI) version (@24). In 1978, four years after BII's introduction, Sony decided to drop BI - even though it still constituted 30% of its installed base (@25). From 1978 on is when VHS overtook Betamax in market share (see graphs @26). Nonetheless, in discussing "what sank Betamax" at pp. 27ff, MR totally omits any mention of these bad Sony decisions, even though they clearly played a role. His conclusion that Sony "cannot be blamed for shortsightedness in its defeat" (@31) doesn't seem supported by the evidence he himself adduces. (Nor were these unique errors at Sony; similar back-compatibility gaffes re PS3 were a factor leading to sluggish sales and the April 2007 resignation of PlayStation's founder, Ken Kutaragi.)

CONCEPTUAL ISSUES:

(a) LACK OF SUFFICIENCY: (a) A key point in the book, according to my correspondence with MR, is the distinction between "growth options" and "strategic options"; you need to have strategic options to have "strategic flexibility". However, MR concedes that these terms are never explicitly defined in the book. (b) After invoking Black-Scholes and other computational techniques, even MR concedes that valuation of real options is very problematic (see, e.g., @254-255 and @ 293). It is never made clear how to use them as anything other than a fancy seat-of-the-pants, subjective heuristic. For more on this point, see, e.g., articles by A. Borison ("Real Options Analysis: Where Are the Emperor's Clothes?", 2003, which despite its title is optimistic about real options analysis) and R. Adner & D. Levinthal ("What is NOT a Real Option", 2004), both of which you can find on the Internet.

(b) LACK OF NECESSITY: As I understood it, an important difference between a growth option and a strategic option is that the latter has a potential synergy with your existing businesses/core competencies while the former does not. (If I'm still messing this up after so many emails back and forth, I invite MR to correct me in a comment to this review.)

So to use an example, say you mill flour for bread and noodles, and you're interested in taking an option on a trend for high-end desserts. If you invest in an ice cream company, that could be a "growth option," while if you invest in businesses related to high-end baked desserts that would be a "strategic option" - your investment could yield learning that could be valuable for your flour-milling business, and if it succeeds, you might be able to sell a lot more flour. (The largest Japanese cup-noodle company did something analogous to this a few years ago, when it opened up a chain of very chic pizzerias in Tokyo, with all chefs trained in authentic Neapolitan dough- and pizza-making techniques.)

Now, I ask you: do you really need "real option analysis" to figure out that an investment in a baked desserts (or chic pizza) business might have some special advantages, given your current business? It's kind of common sense. That's a saving grace of the book - its recommendations aren't total BS. But the jargon of real options may obscure, rather than highlight, its good advice. And certainly, the advice isn't new; I have given similar recommendations to my clients while being blissfully ignorant of what "real options" are, and I'm sure lots of other advisers have been doing so for years, decades or centuries before me. Similarly for the notion of considering risk and reward, e.g., allocating smaller dollar amounts to more speculative and risky opportunities.

I won't dwell on the somewhat muddled use of mathematical and physics jargon such as Chapter 5's philosophical discussion of forecasting, complete with an invocation of chaos theory (including inapt references to "randomness in initial conditions" and initial conditions that are "less than orderly", both @97 - I think what MR means is that initial conditions can only be known to a finite degree of accuracy). Appearing to be scientific is now a time-honored feature of a consultant's pitch, and here just highlights the fact that the book is intended as a foot in the door for selling consulting services. The scientism isn't central to the book's thesis; and after all, the guy's entitled to make a living.

In fact, I really appreciated the patience and candor of MR in our emails. Among other things, he very freely admitted that his thinking about these subjects was still evolving, even after the book had been published. If I were reviewing the author together with the book I'd give 5 stars, and maybe someday I could give the same to a future edition of or sequel to the present book. But unfortunately, that's not yet the quality of what you'll receive if you order the item on this page.

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reviews: 1, 2, 3, 4, page 5, 6, 7

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