Strategy is what you DO, not what you SAY
In his research on interpersonal behavior patterns, the late management scholar Chris Argyris, noted that there is often a dramatic difference between what people say they are doing and what they actually do. He called the former, Espoused Theory and the latter Theory-in-Use. For example, a person’s Espoused Theory could be that “I always listen carefully before offering my opinion.” However, if the person’s behavior is observed, the Theory-in-Use might actually be that the person listens only if the other person is saying something agreeable and cuts the other off if he or she heads in a contrarian direction. Argyris pointed out that this sort of disjuncture between Espoused Theory and Theory-in-Use renders individuals much less effective in accomplishing their goals and, sadly, incapable of figuring out how to learn and improve.
I see the same schism between Espoused Theory and Theory-in-Use in strategy with similarly deleterious effects. The schism comes in two basic flavors.
Flavor #1: Tough Guys/Gals Don’t Do Strategy
Many executives who pride themselves on being practically or operationally focused will claim that they don’t do strategy or don’t have a strategy because they are focused what is truly important: operations/execution. They will often declare that after they have finished dealing with the pressing execution issues, they will turn their minds to strategy — which in my experience they never do because by their definition, there will always be a pressing execution/operational issue. These executives see strategy as conceptual and theoretical — for process-oriented MBA types — not for tough-minded and practical executives like themselves, who just operate and get stuff done! This is often the case with entrepreneurs who will claim that they don’t do strategy at all and have no intention to do so. They just do what their gut tells them, so there is no need for a strategy.
Flavor #2: Strategy as Fantasy
Others hold strategy to be centrally important and have extremely lofty statements of their strategy. They typically have a majestic statement of vision/mission/aspiration — “We are the most transformational force in our entire industry, bringing new value to customers and blazing a trail to the future.” These statements also typically include decisive competitive advantages — “We are superior to all competition in providing value to our customers who reward us with the highest level of loyalty in the industry.” These statements tend to be incorporated into thick strategic planning documents and find their ways onto posters on walls and Lucite blocks on desks. Executives of these organizations go out of their way to tell others about their company’s magnificent strategy.
It is Not What You Say…
I would argue that for both flavors, the assertion is neither correct nor helpful to the company in question. Strategy is choice — this set of five choices, with the Where-to-Play (WTP) and How-to-Win (HTW) choices as the heart of strategy.
The companies led by execution-focused executives play in some places and not others — their WTP. They compete (and maybe win, but maybe not) in some way(s) and not others — their HTW. In addition, they have an observable set of Capabilities that enable them to compete in the way that they compete, where they compete. And they have a set of Management Systems that have caused them to settle on investing in those Capabilities. And from those four choices, one can infer what their Aspiration really is. Their Espoused Strategy is that they don’t have a strategy — but their Strategy-in-Use is the product of the choices they have made.
For the companies with strategy as fantasy, one can look to see whether what they say is reflected in the outcomes they experience. Typically, the Aspiration is utterly unfulfilled. The WTP may be accurate, but the HTW (however stated) is delusional and neither the necessary Capabilities nor Management Systems are to be found. Their strategy is an Espoused Strategy not their Strategy-in-Use.
Though for different reasons, in both cases, there is a wide gulf between their Espoused Strategy and their Strategy-in-Use.
…It is What You Do
For all companies — including these two flavors — your current strategy is what you do, which is the cumulation of the choices that you have made to this point in time. All your previous choices have produced your current WTP. All your previous choices have produced your current HTW. All your previous choices have produced the set of Capabilities you now have and have shaped the Management Systems that guide you. And all your current WTP, HTW, Capabilities and Management Systems define what your Aspiration actually is. In contrast to the Espoused Strategy, it is the Strategy-in-Use.
The Problem with the Espoused Strategy/Strategy-in-Use Gap
A substantial gap between Espoused Strategy and Strategy-in-Use creates myriad problems. Those with strategy as fantasy are vulnerable to organizational cynicism. Staff will look at the lofty statement and compare it to what is really happening and come to see leadership as knowingly hypocritical, which undermines trust in leadership. These companies are also prone to surprisingly disappointing results because leadership tends to believe its own assertions and assume that the ‘strategy’ will produce far better results than it has any chance of doing. Further, that belief will typically result in delayed responses to systematically bad performance.
For those who see themselves as waiting to do strategy until they have tackled their execution challenges, their Strategy-in-Use becomes a cumulation of short-term fixes of pressing problems rather than a coherent and purposeful set of choices. The lack of such a purposeful set of choices is what causes the company to be beset by continuous ‘operational/executional challenges,’ which causes the leader to postpone tackling strategy again, which causes more challenges, which cases delay, and so on.
For those who claim to not have a strategy at all, mainly successful entrepreneurs, the degree to which the logic of the true strategy is buried deeply and implicitly in the head of the entrepreneur makes it extremely difficult to transition to the next generation of leadership. It is, of course, not the only reason for the well-documented problem of moving from entrepreneur to professional management, but I believe it is a significant contributing factor.
The biggest problem with a substantial gap between Espoused Strategy and Strategy-in-Use is that it is very difficult to improve your current position if you don’t know where you are today. If you want to get to Kansas City, it is sure important to know whether you are starting out from Boston or Los Angeles! If you want to improve from your current outcomes by improving your strategy, it is absolutely essential to know what your current strategy is. That has little or anything to do with what you say, it is a product of what you have done and are doing.
The Practitioner Insight
For this reason, by far the most productive way to start work on strategy is to reverse engineer your current strategy. This means to enumerate how our choices to date have resulted in the current definition of 1) where we play (and here follow the advice of my previous PTW/PI), 2) the current approach to how we compete, 3) the capabilities we have built and 4) the management systems that currently govern the way we operate. This assessment should not concern itself with any intent about the future because the goal of this exercise is to get a clear definition of the current Strategy-in-Use. The final step is to define what the answers to these four questions mean for our actual aspiration — not some lofty one, the one that would be most consistent with the answers to the four questions. If we play broadly, win nowhere, have capabilities that mirror those of competitors and management systems that reinforce the previous three answers, our aspiration is to be mediocre. If we were trying to be great, we wouldn’t have made those choices.
This can be an emotional exercise because participants will typically want to characterize their company’s strategy in a more positive, aspirational and future-oriented way. If they are unable to warm to the task, switch to first doing the exercise for your closest competitor. Attempt to reverse-engineer their WTP, HTW, Capabilities, Management Systems — and therefore infer their Aspiration. The group is likely to be able to do that exercise reasonably dispassionately. Then you can tell them to imagine they are actually the management team of that competitor and are tasked with doing the same exercise for your company. At that point, the group can typically tackle the reverse-engineering task productively.
With an accurate description of your Strategy-in-Use in hand, you are ready to take the next step, which is to define the problem that needs to be solved by making improvements to this Strategy-in-Use — and that will be the subject of my next PTW/PI!
[This is the fourth in my series of Playing to Win Practitioner Insights (PTW/PI). The first was The Role of Management Systems in Strategy, the second was Is the Opposite of Your Choice Stupid on its Face?, the third one was Why I am Skeptical of Low Market Shares.]