The Diagnosis VI

most deep strategic changes are brought about by a change in diagnosis--a change in the definition of the company's situation. 

In business, most deep strategic changes are brought about by a change in diagnosis--a change in the definition of the company's situation.  For example, when Lou Gerstner took over the helm at IBM in 1993, the company was in serious decline.  Its historically successful strategy had been organized around offering complete, integrated, turnkey end-to-end computing solutions to corporations and government agencies.  However, the advent of the microprocessor changed all that.  The computer industry began to fragment, with separate firms offering chips, memory, hard disks, keyboards, software, monitors, operating systems, and so on.    Then new industry structure was fragmented and, it was argued IBM should be broken up and fragmented to match.

After studying the situation, Gerstner changed the diagnosis.  He believed that in an increasingly fragmented industry, IBM was the one company that had expertise in all areas.  It's problem was not that it was integrated but that it was failing to use the integrated skills it possessed.  IBM, he declared, needed to become more integrated--but this time around customer solutions rather than hardware platforms.  The primary obstacle was the lack of internal coordination and agility.  Give this new diagnosis, the guiding policy became to exploit the fact that IBM was different, in fact, unique.   IBM would offer customers tailored solutions to their information-processing problems, leveraging its brand name and broad expertise, but willing to use outside hardware and software as required.   Put simply, its primary value-added activity would shift from systems engineering to IT consulting, form hardware to software.

Neither the "integration is obsolete" nor the "knowing all aspects of IT is our unique ability" viewpoints are, by themselves, strategies.  But these diagnoses take the leader, and all who follow, in very different directions.

ACTION POINT:  Consider the direction that a diagnosis will take you.