Strategy is a Hypothesis II

Similarly, we test a new strategic insight against well-established knowledge about the business.

In science, you first test a new conjecture against known laws and experience.  Is the new hypothesis contradicted by basic principles or by the results of past experiments?  If the hypothesis survives that test, the scientist has to devise a real-world test -- an experiment-- to see how well the hypothesis stands up.

Similarly, we test a new strategic insight against well-established knowledge about the business.  if it passes those hurdles, we are faced with trying it out and seeing what happens.  Given that we are working on the edge, asking for a strategy that is guaranteed to work is like asking a scientist for a hypothesis that is guaranteed to be true--it is a dumb request.  The problem of coming up with a good strategy has the same logical structure as the problem of coming up with a good scientific hypothesis.  The key differences are that most scientific knowledge is broadly shared, whereas you are working with accumulated wisdom about your business and your industry that is unlike anyone else's. 

ACTION POINT: A good strategy is, in the end, a hypothesis about what will work.  Not a wild theory, but an educated judgment.

Strategy is a Hypothesis

a good business strategy deals with the edge between the known and the unknown.

Where does scientific knowledge come from?  You know the process.  A good scientist pushes to the edge of knowledge and then reaches beyond, forming a conjecture-a hypothesis-about how things work in that unknown territory.  If the scientist avoids the edge, worth with what is already well known and established, life will be comfortable, but there will be neither fame nor honor.

In the same way, a good business strategy deals with the edge between the known and the unknown.  Again, it is competition with others that pushes us to edges of knowledge.  Only there are found the opportunities to keep ahead of rivals. There is no avoiding it.  That uneasy sense of ambiguity you feel is real.  It is the scent of opportunity.

ACTION POINT: Seek the edge for your business and then reach beyond.

The Science of Strategy

A new strategy is, in the language of science, a hypothesis, and its implementation is an experiment.

Good strategy is built on functional knowledge about what works, what doesn't, and why.  Generally available functional knowledge is essential, but because it is available to all, it can rarely be decisive.  The most precious functional knowledge is proprietary, available only to your organization.

An organization creates pools of proprietary functional knowledge by actively exploring its chosen arena in a process called scientific empiricism.  Good strategy rests on a hard-won base of such knowledge, and any new strategy presents the opportunity to generate it.  A new strategy is, in the language of science, a hypothesis, and its implementation is an experiment.   As results appear, good leaders learn more about what does and doesn't work and adjust their strategies accordingly.

ACTION POINT: Look for the pools of knowledge within your organization to identify what does and does not work, then adjust.

Thinking Like a Strategist

There are a number of ways of thinking about thinking that can help you create better strategies. 

In creating strategy, it is often important to take on the viewpoints of others, seeing how the situation looks to a rival or to a customer.  Advice to do this is both often given and taken.  Yet this advise skips over what is possibly the most useful shift in viewpoint: Thinking about your own thinking.

Our intentions do not fully control our thoughts.  We become acutely aware of this when we are unable to suppress undesired  ruminations about risk, disease, and death.  A great deal of human thought is not intentional--it just happens.  One consequence is that leaders often generate ideas and strategies without paying attention to their internal process of creation and testing.   There are a number of ways of thinking about thinking that can help you create better strategies.    Inductive leaps are part of both the scientific hypothesis and strategy.   Subjecting your ideas to deeper criticism can help expand your thinking and sharpening your sensitivity can help you see beyond the excitements of crowd thinking to better form independent judgments about important issues.

ACTION POINT: Consider your own process for thinking and look for ways to sharpen and expand it.

Turbulence: Threat or Opportunity?

When it rains manna from heaven, some people put up an umbrella.  Others reach for a big spoon.

The manager will have to look at her task and ask, “What must I do to be prepared for danger, for opportunities, and above all for change?”  First, this is a time to make sure that your organization is lean and can move fast.  So this is a time when one systematically abandons and sloughs off unjustifiable products and activities-and sees to it that the really important tasks are adequately supported.  

Second, she will have to work on the most expensive of resources-time-particularly in areas where it is people’s only resource, as it is for highly paid, important groups such as research workers, technical service staffs, and all managers.  And one must set goals for productivity improvement.  

Third, managers must learn to manage growth and to distinguish among kinds of growth.  If productivity of your combined resources goes up with growth, it is healthy growth.  Fourth, the development of people will be far more crucial in the years ahead.

ACTION POINT: Get rid of unjustifiable products and activities, set goals to improve productivity, mange growth, and develop your people.