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Sidestepping Disaster


THE STRATEGY PARADOX

Why Committing to Success Leads to Failure (And What to Do About It)

By Michael E. Raynor

Currency/Doubleday -- 303pp -- $27.50

(Readers'

Reviews below)

Editor's Review

The Good An insightful look at how the prerequisites of success are also the ingredients of failure.

The Bad At its worst, the book rationalizes bad business decisions as victims of bad luck or timing.

The Bottom Line The wide-ranging study of winners and losers provides penetrating insights.

Quick, which of these three companies doesn't fit with the other two: Apple (AAPL), whose cutting-edge iPod line has made it a darling of Wall Street; IBM (IBM), whose culture of quickly co-opting the innovations of others has helped it deliver decades of steady returns; or erstwhile media conglomerate Vivendi (V) Universal, whose failure cost CEO Jean-Marie Messier his job and his shareholders billions in losses?

If you're an investor, you probably consider Vivendi to be the outlier. But according to Michael E. Raynor, author of The Strategy Paradox: Why Committing to Success Leads to Failure (and What to Do About It), there's actually a fine line between Apple's success and Vivendi's woes. Both took bold risks that seemed inherently logical at the time, but Apple's timing with the iPod simply proved to be better than Vivendi's early bet on the Internet--a predicament Raynor calls the strategy paradox. "The strategies that have the best chances of succeeding brilliantly are also the ones most exposed to the most debilitating kind of strategic uncertainty," writes Raynor, a distinguished fellow at Deloitte Research and co-author with Clayton Christensen of The Innovator's Solution. "Whatever the industry, firms that guess right and commit more vigorously to the strategy that fortune ultimately favors will defeat their competitors."

To discover what separates companies that excel from those that fall short, Raynor took a different tack from other management scholars. Instead of merely studying winning companies, in the mode of Jim Collins' classic Good to Great, Raynor also conducted postmortems of thousands of losers. This proved a valuable undertaking, providing many of the book's penetrating revelations.

The author was surprised to find that successful and failing companies shared so many similarities. (On that note, he includes case studies of winning approaches, such as those of Microsoft (MSFT) and Johnson & Johnson (JNJ), as well as perceived failures such as Vivendi, Canadian telecom giant BCE (BCE), and Sony (SNE), with its unsuccessful Betamax and MiniDisc technologies.) Most had made reasonable assumptions about the future of their businesses and had executed their strategies relatively well. In an unexpected number of instances, what separated the winners from the losers was either poor timing or unforeseeable changes in the landscape that played into the hands of some companies--and out of the hands of others. For instance, Raynor makes the provocative argument that Apple's success with the iPod was somewhat serendipitous: The popularity of Napster and other music-download sites created instant demand for digital-music devices while crushing the market for disc players like Sony's MiniDisc, which Raynor contends was a well-conceived product. Similarly, Vivendi's undoing was that its huge bets on the Internet came too early, and, Raynor argues, that Messier became too involved in minutiae at the expense of broader strategy.

To some degree, this all makes business sound like a crapshoot and explains why many companies opt for a strategy that minimizes failure but limits opportunities for explosive growth as well. But Raynor has created a governance structure that, he contends, allows leaders to forgo this traditional trade-off and achieve high returns even as they minimize the risks associated with growth. For a company to be able to adjust to unexpected shifts in business, he says, many traditional management roles must be redefined.

First, boards of directors should not be involved in strategy, he says. Rather, the role of a director should simply be to define the "strategic risk profile" for the company. "It is legitimately--and perhaps primarily--the board's role to consider carefully the trade-offs between risk and return implied by any strategy that management might propose," he writes.

Next, Raynor argues, CEOs should concentrate not on operations but on developing long-term strategies--or rather, a set of long-range strategic options. Lastly, Raynor favors creating a team of line managers who oversee the company's short-term operations and who don't worry about strategy.

Making these pieces fit together requires a plan, which Raynor provides as well. He suggests that senior-most executives map out every scenario they can imagine, as well as a menu of possible responses for each of these developments. Then, as the future unfolds, they determine which options are appropriate and take action. Overall, Raynor's approach requires more strategic planning than many companies are accustomed to. But if he's right, it could enable them to avoid becoming yet another statistic.

By Dean Foust


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