Organize for Constant Change

Today’s certainties always become tomorrow’s absurdities.

One thing is certain for developed countries-and probably for the entire world-we face long years of profound changes.  An organization must be organized for constant change.  It will no longer be possible to consider entrepreneurial innovation as lying outside of management or even as peripheral to management.  Entrepreneurial innovation will have to become the very heart and core of management.  The organization’s function is entrepreneurial, to put knowledge to work-on tools, products, and processes; on the design of work; on knowledge itself.

Deliberate emphasis on innovation may be needed most where technological changes are least spectacular.  Everyone in a pharmaceutical company knows that the company’s survival depends on its ability to replace three quarters of its products by entirely new ones every ten years.  But how many people in an insurance company realize that the company’s growth-perhaps even its survival-depends on the development of new forms of insurance?  The less spectacular or prominent technological change is in a business, the greater the danger that the whole organization will ossify, and the more important, therefore, is the emphasis on innovation.

ACTION POINT: Are you and your organization in danger of ossification? Decide how you and your organization can systematically innovate, and build this into your management process.

Enlightenment and Science

...in a world of change and flux, "more of the same" is rarely the right answer. 

If new insights or ideas are not needed, deduction is sufficient.  There can be times when results are fine, when no new opportunities seem to have developed and no new risks have appeared.  Then, the logical answer to the strategy question is simply "Keep it up, do more of the same."

But in a world of change and flux, "more of the same" is rarely the right answer.  In a changing world, a good strategy must have an entrepreneurial component.  That is, it must embody some ideas or insights into new combinations of resources for dealing with new risks and opportunities. 

ACTION POINT: To generate a strategy, one must put aside the comfort and security of pure deduction and launch into the murkier waters of induction, analogy, judgment, and insight. 

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.