Understanding strategy: why is strategy so difficult?

The discussion, so far, has been to contrast the more complex and intractable view of strategy against the relatively more narrow view of strategy taken by academics and practitioners. A narrower view of strategy is popular because it is more comfortable and more convenient to do so. This allows business problems to be analyzed from within the repertoire of existing models, frameworks, and paradigms. The intellectual challenges of stepping outside the narrow area of bounded knowledge are considerable. However, as we will discover in the discussion that follows in this section, strategizing necessarily has to be a dynamic process dealing with an unknown, ambiguous, and indeterminate set of variables that have an impact on an organization in an uncertain future. As a consequence, we must be prepared to question all assumptions, postulates, and theories. It does not mean we have to craft everything anew or discard existing knowledge, but to ascertain the validity of past theories and be open to new ways of thinking.

For example, when strategizing in business, a common approach is to examine the phenomenon of consumption through the lens of demand. Followers of Keynsian economics have subscribed to the axiom, "Demand creates its own supply." This is in contrast with Say's (1803) Law, which states "Supply creates its own demand." There has existed an ongoing debate in economics between classical economists and the followers of John Baptist Say, the insightful French economist. We do not plan to enter into this debate, but wish to sensitize the reader to the two viewpoints that frame our arguments in this section. Much of training in business has centered on the notion of consumption, and that economics is often thought of in consumptionist terms (http://www.friesian.com/sayslaw.htm). As a consequence, business and strategic orientation have focused on methods to increase demand, hence consumption.

This is a traditional and orthodox approach to strategizing. One needs to break away from this orthodoxy and approach the consumer from a radically different direction. This is not to suggest that the conventional approach is to be abandoned. Rather, the important point is to expand the way one conceptualizes and theorizes about business. Certainly, the conventional logic and existing frameworks, to which there is so much invested, should be treated with due respect. It is not only academics that have much at stake in current models, frameworks, and paradigms, but also organizations that have invested in their existing infrastructure. Organizations have an infrastructure that has to be leveraged profitably (Trunick, 1996). However, leveraging existing knowledge and infrastructure will result in making incremental movements from where an organization is currently located. Such incremental movements will result in better operational readiness and higher levels of tactical effectiveness. However, it is not by following existing models, frameworks, paradigms, or even infrastructure that radical differences will be made. The mental approach to making radical differences comes from the spirit of Say's (1803) Law that suggests that supply creates is own demand. Larry Mulkey, quoted in Trunick (1996), states, "Instead of building a system that is incrementally based on where you are now, you build backwards from where you want to be" (1996: 26).

How is it possible for supply to create its own demand? If not taken literally by the letter of Say's (1803) Law, but the spirit, we have to think of goods and services (products) that are delivered to the customer even before the customer actually articulates a specific need for the product. This is happening in many cases with products that are at the cutting edge of technology or based on emerging concepts. Strategists have to gain insights from the many discontinuities that are taking place. Recognizing and leveraging discontinuities is not possible from the mindset that is produced by examining standard models, frameworks, and paradigms. Hamel and Prahalad (1995: 15) mention that industry foresight is based on deep insights into the trends in technology, demographics, regulations, and lifestyles that can be harnessed to rewrite industry rules and create new competitive space.

It is possible for supply to create its own demand when strategists are no longer solely customer-led but are product-led. This would run against the grain of conventional thinking and practice. As Hamel and Prahalad mention, "It is much in vogue to be customer-led. From their bully pulpits, which today are likely to be worldwide satellite hookups, CEOs tell the troops that everything begins with the customer" (1994a: 67). The area of future opportunities is to look for openings and chances outside the arena of existing competition. To put the matter in perspective, most organizations are providing products that customers can clearly articulate, coupled with producers that have the ability to clearly respond to those articulations. Since the articulation is clear, the competition is most intensive, and the competitive space is crowded. However, in order to create new competitive space, producers have to move beyond what is clearly articulated by customers and producers.

Sony, one of the most formidable and innovative companies, follows the philosophy of being ahead of the customer. Sony's visionary former chairman, Akio Morita, had this to say, "Our plan is to lead the public with new products rather than ask them what kind of products they want. The public does not know what is possible, but we do. So, instead of doing a lot of market research, we refine our thinking on a product and its use and try to create a market for it by educating and communicating with the public." Masaru Ibuka, the company's co-founder agrees when he says, "Our emphasis has always been to make something out of nothing." Consequently, we feel that the areas unarticulated by customers and producers are where the maximum opportunities lie. Figure 3, adapted and modified from Hamel and Prahalad (1994b), presents the main features of our model.

[FIGURE 3 OMITTED]

On the vertical axis are the articulated and unarticulated needs of customers. On the horizontal axis are the articulated and unarticulated abilities of producers. Most academics and practitioners focus on quadrant 1, where clearly articulated needs of customers are coincident with the clearly articulated abilities of producers. Quadrant 1 typifies the conventional mindset that is trained on existing models, frameworks, and paradigms. Much of business knowledge is simply descriptive in that theories are used to understand the past and make sense of the past. The predictive component of business theory is relatively limited as existing theory is not a good predictor of the future. Many organizations feel competitive pressures from unpredictable sources. Music publishing companies did not feel the heat of competition from their well-established and well-identified rivals. Rather, they felt competitive pressures from Napster, an organization whose form, style, and composition the established music firms had never conceptualized and had no competitive response to, other than to take legal action. Similarly, established booksellers were outflanked by the activities of Amazon.com who competed on a front that established booksellers were either unaware of or were completely blindsided to. Competing in quadrant 1 can make an organization totally vulnerable to possibilities that may exist outside the obvious. More recently, CNN reported that young entrepreneurs in New York City are challenging Internet Service Providers (ISPs). These entrepreneurs are offering free Internet service in their neighborhoods because they have excess capacity from their cable modem connections. These entrepreneurs are trying to force ISPs to provide free Internet service in certain neighborhoods and public places like parks, subway stations, and libraries. These entrepreneurs, in seemingly guerilla-like operations, are creating competitive fronts for traditional ISPs in areas that ISP organizations had not conceived of. These challenges have to be met, as they are likely to affect the revenue flow and viability of otherwise profitable ISPs.

The areas of opportunities lie in quadrants 2, 3, and 4. Organizations (the producers of goods and services) need to make efforts to explore opportunities outside of quadrant 1. In quadrant 2, producers are ahead of customers and this usually happens when innovative and creative organizations (like Sony Corporation) deliver products that are outside the customers' articulated needs. Evidently, Sony Corporation is a clear follower of Say's Law in the way it has been introducing highly successful products for seemingly non-existent needs, and creating entirely new customer segments and customer types. Creativity and innovation allow certain organizations to succeed in quadrant 2. The 3.5-inch disk in place of the 5.25-inch disk is something producers launched in the market long before customers articulated a need for it. Higher processing speeds, greater data storage capacities, and more capable software are quadrant 2 products that are invariably ahead of customers. The linkage between Say's Law and quadrant 2 is obvious.