#630： The Strategy Paradox
Episode Stats
Summary
To be a great success in business, you need to have a compelling vision, create a compelling strategy to achieve that vision, and then fully commit to that strategy with action and resources. That s also the recipe for being a great failure in business. That's what my guest argues in his book, The Strategy Paradox, why committing to success leads to failure.
Transcript
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Brett McKay here and welcome to another edition of the Art of Manliness podcast. To be a great
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success in business, you need to have a compelling vision, create a well thought out strategy to
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achieve that vision, and then fully commit to that strategy with action and resources.
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That's also the recipe for being a great failure in business. That's what my guest argues in his
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book, The Strategy Paradox, why committing to success leads to failure. His name is Michael
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Rayner, and we begin our discussion by describing the strategy paradox. The fact that the same
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sound strategy can lead to both success and failure. We discuss how the outcome then depends
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less on the strategy itself than on the idea you decide to bet on, using the example of the way
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Sony employed the right strategy in backing Betamax in the VCR wars, but still lost out to VHS.
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Rayner then explains the limitations of forecasting and adaptation, the approaches companies typically
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use to navigate the tension between needing to commit to something and being uncertain they've
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committed to the right thing. He then unpacks two more effective ways of developing strategic
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flexibility, separating the management of commitment from the management of uncertainty,
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and acquiring a portfolio of assets that will increase your optionality. We end our conversation
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with whether the strategy paradox can be applied not only to making decisions in business, but to
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making decisions in our personal lives as well. After the show's over, check out our show notes at
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aom.is slash strategy paradox. All right, Michael Rayner, welcome to the show.
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So tell us a bit about your background because you are, I don't know, you're a business strategy guy.
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You think about business strategy as your career. What got you thinking about that and doing that?
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You know, that's a good question. I don't know that I've ever reflected on how I ended up there.
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I suppose the honest answer, since you've caught me flat-footed, is it's because I didn't want to
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go to law school. I went to law school. Okay, well, you're a braver man than I, Charlie Brown.
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I did my undergrad in philosophy. Not a lot of call for court philosophers, so I had to go get a job.
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Ended up working for a small consulting firm, doing, of all things, statistical process control work,
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which my reading of Heidegger and Nietzsche prepared me for quite well, as you might expect.
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Ended up, as I said, didn't want to go to law school. Ended up taking an MBA and started down
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that path as a consequence. Spent a couple of years with Deloitte as a consultant.
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Thought that I would have fun answering my own questions instead of the client's questions,
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so went and did a doctorate in business, in business policy. And then, to my shock and amazement,
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because a doctorate is kind of a union card to go be a business school prof, I ended up back at
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Deloitte and have been there ever since, doing a variety of things. But in general, I'd say it's
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sort of straddling the interstices of research and practice, which has been an enormous privilege
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Well, you said you wanted to answer your own questions. That's why you went to go get your
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PhD. What were the questions that you had as you went into this world of business as a philosophy
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guy? What were the questions that you came up with as you started getting into this world?
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So I think uncommonly, I went in with the idea that I was going to address a particular question
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and ended up doing something really quite different. But when I was, as a consultant,
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back in the, and I'll date myself here, in the mid-90s, that was the first wave of technological
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convergence, right? That was sort of when the internet, it was clearly going to be a thing.
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And a lot of the major corporations that I was consulting with were looking at and trying to
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understand what that was going to mean for their business. And so there was a flurry of
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diversification back in the day when phone companies, remember them, were buying cable companies,
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remember them, and movie studios and so forth were all trying to figure out how they're going to have
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to reinvent their business. And so that's what I thought I was going to tackle. And just as an
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aside, as it turns out, they were all right. They were just 20 years too soon. And being early is in
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many ways worse than being wrong. So anyway, I ended up going into the doctoral program and ended up
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focusing on diversification, but much more generally. So rather than looking at diversification in the
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face of technological uncertainty, just diversification as a general management phenomenon.
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Right. So I think that leads to that idea that those companies you're seeing, those technology
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companies, phone companies, cable companies, trying to get a head on the internet boom that
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was happening in the 90s, didn't really work out for them because they were too early. I think there's
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a nice segue to what we're going to talk about today. I published a book a couple of years ago called
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The Strategy Paradox. So let's start off. What is The Strategy Paradox?
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Yeah. So that title was born of the observation that when you read the liturgical texts of the
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strategy field, Pankaj Gamowat, Michael Porter and company, the clear advice is that it's absolutely
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crucial to be committed to a particular market position, a particular quality cost position and
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devote yourself to serving a particular market segment. And that it is the commitment to those
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specific positions that allows you to differentiate yourself from your competition and hence succeed.
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And they're not wrong. You look at the companies that, you know, they hardly needed my validation,
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but for what it's worth, they're not wrong. When you look at the companies that have been
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successful, that is very often a hallmark of their success. But what occurred to me is that when I
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looked at the companies that had been catastrophic failures, they often exhibited many of the same
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characteristics. And they were committed to specific technologies, specific market positions,
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specific market segments, specific value propositions. They just happened to choose the
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wrong ones. And so that doesn't help a lot if the advice for good strategy is place the right bets.
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So the question becomes, how do you figure out what kinds of bets to make when it is deeply
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impossible to know in advance with any real certainty what the right bet is going to be?
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All right. So just to clarify, so the recap of the strategy paradox is, you can have a good,
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you can follow all the advice on developing sound strategy, but you can still fail anyway.
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Yeah, exactly. So the characteristics that define both successful and failed strategies
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seem to be the same characteristics, which is a bit of a paradox, it seemed to me.
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I mean, why do you think most business books, these guys that you talk about, these liturgical
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tests, why do you think they miss that idea of the strategy paradox?
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Well, in fairness to them, they didn't miss it. It just wasn't their focus, right? So you can read
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Competitive Strategy by Michael Porter, and there's a part, I think I can't remember precisely,
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so Call Me a Liar for a Chapter, but something like Chapter 14, it's sort of back in there somewhere.
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And it's very much an oh and by the way kind of situation. And then Pankaj Gemowat's book,
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which I think is a fantastic book, right? I mean, I'm not, I hope to add to our understanding,
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not take down anybody else. So Pankaj Gemowat's concept of strategy as commitment, I think is
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extraordinarily powerful, because it's that commitment over time is what makes your particular
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position in the marketplace very difficult for others to copy, right? They say there's only two
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things you can't compress, water and time. And so when your strategic position is born of commitment
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over time, it's almost impenetrable. The problem is you have to commit to the right thing. And that's
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the difficulty. And so my hope was, I mean, nobody can talk about everything. So my hope was to pick up
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that particular thread of the conversation and say a little more, a little bit more about it.
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You have to commit for a strategy to be good. But the problem is, you're uncertain about whether
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Absolutely. That's the hard part. I mean, so in the book, for example, I spent a lot of time
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talking about Betamax. That really is going back to the antediluvian era. But Sony was a particularly
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compelling example to my mind of a company that seemed to do everything right, and sometimes had
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fantastic success and sometimes had fantastic failure. And it's not like they did anything
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different when they succeeded versus when they failed, except for the fact that they guessed
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wrong. So sometimes they guess right, sometimes they guess wrong. And that was the part that I
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found a bit frustrating. And what could we do about that? How could we try and address that problem?
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Well, let's walk through that case tag. I think they really highlight the strategy paradox in action
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with the Betamax story. So for those who are young, too young to remember Betamax,
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they came up with the first version of a VHS tape. VHS was the competitor, but they had their own
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version of that. And it seemed really promising. But why did we use VHS tapes and not Betamax?
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Yeah. So post-facto, and not surprisingly, the universe is sometimes inexplicable, but it's very
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rarely capricious. So when we look back, we can explain what happened and say, here's why they ended up
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on the wrong end of that bet. And it had to do with what I tried to describe in the book as a whole
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number of uncertainties that simply broke against them instead of for them. The most important of
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those was the movie studios making libraries of movies available to be released as a video recording.
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So then there was a battle between the expenses associated with releasing movies in two formats,
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beta and VHS. I mean, back in the day, in the late 70s, early 80s, people would go into VHS shop,
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video rental stores, and they had to determine whether or not the movie they wanted was available
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in the format they had. And that was at a time when video rental stores were kind of mom and pop
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operations. The movie studios would charge $50, $60, and this is 40 years ago, for each of the tapes
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that they would then rent out. And mom and pop video rental places don't have a huge amount of
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capital. So they basically had to pick. And so they would go with whichever one had greater market
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penetration. And for reasons that, again, I go into that are somewhat involved, VHS ended up with
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a small advantage just when the movies were starting to be made available. And as a consequence of that,
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the snowball rolled down one side of the mountain instead of the other, and Sony got swamped.
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I mean, one of the advantages, VHS was, I guess, cheaper. They kind of sacrificed quality a bit.
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Betamax is like super high quality, the video. VHS is like, well, we're not going to do that. And that
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was one of those factors that tilted towards their favor.
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Absolutely. Yeah. And the big thing was that Sony had made the bet that the device was going to be
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used to record shows on television and then watch them, right? So it was basically a time-shifting
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device. And the reason they had made that bet is that they looked at it and said, the movie studios
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are never going to put movies on tape. They'll just never do it. And so they were devoting themselves
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to a higher quality and as a consequence, higher cost and hence higher priced device.
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And for the first four or five, I can't remember exactly, six years of the VCR wars, Betamax had
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a, not only a commanding lead, but also had more profits than everybody else put together.
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They were, if you will, the Apple of the VCR race, you know, higher quality, higher cost,
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higher price, vastly more profitable, better brand cache. I mean, if, you know, anybody who looked
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at this in 1978 would have said Sony is going to win. And what do you think, I mean, do you think
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things could have turned out differently for Sony with the Betamax if they had done something,
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I mean, if they did something, one thing different, or was it sort of just, that was,
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they picked a sound strategy. It looked good on paper. They committed to it and they just happened
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to pick the wrong one. Yeah. I mean, at the risk of, at the risk of being somewhat self-serving,
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I mean, they could have taken, they understood the forks in the road that they were facing and
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they felt we have to pick because that's kind of what good strategy looks like, as opposed to
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thinking about, well, how can we hedge our bets in a way such that if it goes in the other direction,
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we still have a viable strategy, right? So the two big things that they were betting on is that it
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didn't make sense to license the technology because they were focusing on the profitability rather than
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the network effects of market share. And the reason they looked at that, by the way, is that
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the movie studios had made it very clear. I mean, they even took Sony to court in order to have the
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VCR declared illegal because they said this is going to, you know, promote piracy of our intellectual
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property. And so they thought, well, you know, there's no chance that Hollywood movies are going to be
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available on VCRs, so we don't have to worry about that. But they understood that, well, you know,
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if it went that way, that would necessitate a completely different approach to the market.
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So none of that was news to them. It's just that they felt compelled to back one horse rather than
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finding a way to have a, if you will, have a plan B and making the incremental investments in advance
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so that when and as that happened, they were in a position to respond in a timely way.
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And if I might, that's one of the things I hope the strategy paradox contributes, which is it's not
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enough to kind of run the wargaming in your head and say, if they do this, then we'll do that.
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It's about actually spending real money, time, and effort to prepare yourself and be positioned
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to actually respond in a fundamentally different way when circumstances require.
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Gotcha. So I mean, I think someone can hear this about the strategy paradox and it sounds like, well,
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you know, successful companies are successful just because they lucked out and picked the right
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strategy. Is that, I mean, is that sometimes the case with a lot of companies that we hold up is
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like, wow, this guy, this is led by a visionary CEO. Actually, it might've just been, they just got
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luck. They had a good strategy and they lucked out and they picked the right one.
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Yeah, I would agree with that, but I'd say it's slightly less elbows, not quite so sharpened because it's,
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I think very often it's very difficult to tell the difference between luck and skill. So in fact,
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my last book was the three rules, how exceptional companies think was a way to try and figure out
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which companies in fact had delivered a level of performance such that you could conclude it was
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a function of something special about them as opposed to simply just getting lucky. So most of the time,
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I can't tell the difference between luck and skill when it comes to looking at the results that a given
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company has delivered. You know, the simple way to think about it is that if you held the coin
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flipping contest, you know, somebody's going to flip 10 in a row. If you've got 50 people in the room,
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somebody's going to flip 10 heads in a row. And if you ask them what makes them so special,
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they'll give you an explanation about how to flip heads with a fair coin. But that's just variation in
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a process. I'm going all the way back to my first job out of undergrad, right? And so it's important
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to be very humble when we start holding up a particular company or a particular outcome and
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saying, hey, this is special. We need to explain this. Very often what you've got is simply a tail
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in a process that is irretrievably variable and random. And really you're just explaining a random
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outcome, not something that warrants explanation. So another, I mean, some people might be listening
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to this and think, okay, well, a solution to the strategy paradox is you got to commit. That's one
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part. If in order for a sound strategy to exist, you have to go all into it, commit, but you have
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to reduce the uncertainty. So what you can do is just forecast better, get more information,
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get better idea of what's going to happen. But you argue in the book that forecasting,
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predicting the future, it's a lot harder than people think it is.
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Yeah, exactly. I mean, I subscribe to folks like Philip Tetlock on that one who have studied
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attempts to forecast various things. There's another one that I like about called The Fortune
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Sellers, Bill Sheridan's book. And there they make the argument that really the only thing we've
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gotten better at predicting is the weather. And even then, after about five days, we're out of ideas.
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And some of that kind of makes sense, especially in business, because in business, right, you're
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trying to forecast the activities and behaviors of people for whom it is in their vested interest
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to be unpredictable to you, right? Because if they are, I mean, I understand that if you can figure out
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how to predict my actions, then you've got it all over me, right? I'm cooked. So I'm going to do
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everything I can to make sure that you can't predict what I can do. And as soon as you demonstrate
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that you're able to anticipate how I behave, well, then I'm going to change the way I behave.
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So in a sense, it's almost built into the system that is going to be extraordinarily difficult to
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understand how others in a system are going to act under a certain set of circumstances. However
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much you might think you understand their incentives, and as a consequence, think you can say with
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certainty how they're going to act. Fact of the matter is, I think as a practical matter,
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there are just too many degrees of freedom. And the accuracy required to do the kinds of things
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companies need to do in order to be successful, I think is fundamentally, I'll say impossible.
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Right. And not only do each individual person have a lot of freedom, but like the system is complex,
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so they can interact in different ways that you could never, like you'd need like a bajillion
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Exactly. I mean, it's what they refer to as the Laplacian fallacy, right? So the French philosopher
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Laplace said, if you gave me the position and momentum of everything in the universe, I'd be
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able to tell you the position of every atom to the end of all time. He said it more eloquently and in
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French. So that wasn't a quotation. But at the risk of getting a little bit esoteric, I mean,
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just quantum physics, I suppose, would tell us that that's just not true.
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We're going to take a quick break for your words from our sponsors.
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And now back to the show. So another response to make up for the uncertainty that exists with
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business strategy is adapting quickly. So you see that your strategy you committed to
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is not working because the circumstances have changed or the circumstances weren't what you
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thought they were. So what you can do is just adapt on the fly. And then you also argue that,
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well, that's easier said than done. Why is that?
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Yeah, absolutely. Well, I mean, just like, I'm not saying forecasting is useful. I'm saying
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there are limits to what we can do with it. And similarly, with adaptation, it's extraordinarily
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useful. And there are limits to what we can do with it. And so when you reach those limits,
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that's where strategic flexibility comes in. And the reason adaptation is so challenging
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is that in a sense, it's a consequence of the need to be committed. You know, it's kind of like
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saying I've got an aircraft carrier, and I need to make it faster and more nimble. And okay,
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that's great. I can make it faster and more nimble, but I have to get rid of the planes and
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the flight deck. Well, okay, but now it's not an aircraft carrier anymore, right? So there are there
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are deep trade offs in terms of what you're able to do. So if you have, you know, if you're in the
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medical devices business, and it takes, you know, five years of discovery just to figure out how to
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get the technology to work and another five years of testing before you can get the FDA approval,
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and another two or three years of working with key opinion leaders in the medical profession
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before you can get meaningful distribution, you know, you've got a 10 to 12 year runway before
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you get to market. You know, you get eight years into that, and you've lost a lot of degrees of
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freedom with respect to what that product can look like, what its features will be, what your
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business model looks like. I mean, you have to make all those choices way in advance. So it's very
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difficult just to kind of bob and weave your your way through an ever changing landscape.
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Right. So yeah, that's a good point. Because I think sometimes people we forget that
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the business world, you have to in order, if you're doing big stuff, building cars, build,
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you know, doing creating drugs, that takes it's not just you can do this in a year, it's going to
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take it's going to be a several year process and things could change.
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Yeah, not everything is an app, you know, right, right. Yeah. So it's more like, you know, when
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these larger businesses who are doing like big, big things, it's like in order to turn, it's like a
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cruise ship, right? It's going to take a really long time, you're not in a jet boat, because it's
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you're on a big hunking thing. Yes, absolutely. So to the extent you can break those trade offs,
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then I'm all for it, right? I mean, if you, as I said, forecasting useful, and like everything
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has its limits, adaptability useful has its limits. And when you reach those limits, that's when you
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are subject to the strategy paradox. And then you need a different you need a different toolkit.
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Oh, let's let's talk about that different toolkit. And one part of this toolkit is you call it
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requisite uncertainty. And I think this is where you, you say that companies, organizations,
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they need to separate who manages commitment and who manages uncertainty. So what does that look
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like? Yeah, so then I'm borrowing there from a fellow named Elliot Jax, and that's his term. And
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I've tried to translate that into an organizational framework. So there's kind of two parts to coping
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with the strategy paradox. One is, if you will, the strategic dimension, and the other is the
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organizational dimension. So requisite uncertainty speaks to the organizational half of that equation.
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And the view there is that we'll go all the way back to Sony for a minute. If you've got somebody
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who's running the beta division, and you have decided, all right, here's our best guess on what
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we think the world looks like. And so we've got a someone running the beta division, and they commit to a
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very particular strategy. That strategy is a high quality device with higher prices to compensate for the
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higher cost. We believe that the value proposition to consumers is that it's high quality recording of
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broadcast television. And that's our bet. And so you build the model accordingly, and you've got
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somebody whose job it is to make that strategy as successful as they can make it. But go up a layer or
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two in the hierarchy, and you've got somebody who's responsible in my model for thinking about what
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kinds of uncertainties in the marketplace might cause that strategy to come off the rails. What could
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validate it? And then those are all the things we talked about before, right? So what if it became
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more about watching rented VCR tapes? And what would that mean for your relationship with movie
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studios? What would that mean for the importance of network effects? And as a consequence, the need to
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grab market share quickly, as opposed to reaping the profitability of a highly differentiated device in
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what was largely a niche application, right? So almost a complete 180. And so that person looks at that
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and says, all right, if that were to happen, how would that Betamax strategy have to pivot?
00:22:52.240
And what assets would we need to have in place in order to be able to respond? And it becomes that
00:22:57.700
layer of the hierarchy's responsibility to develop relationships with alternative suppliers, to
00:23:03.200
explore the kinds of, to explore how you might actually license your technology as opposed to building
00:23:08.220
them all yourself, to think about how you would relate with movie studios, et cetera, and so on.
00:23:13.820
Right? You can't leave that to the person running the beta strategy because, you know, there's only 26
00:23:18.900
hours in the day, just like for the rest of us. And so you want them focused. You want them committed
00:23:24.160
to a particular strategy as opposed to thinking about all the other stuff they might have to do if the
00:23:29.080
world turns out differently. So it's that separation of responsibilities that I think makes it possible.
00:23:34.080
It's expensive. It's complicated. It's hard, but it's possible.
00:23:38.040
And it sounds like too, that prevents, I don't know, some sunk cost fallacy. If you combine the
00:23:42.720
decision-making or the commitment in the person managing uncertainty, like because you're all,
00:23:48.880
because it's hard to be like, look at other ideas when you're focused on committing to this
00:23:53.680
one strategy you picked, right? So if you're in charge of the Betamax thing, but you're also in
00:23:58.740
charge of looking at other solutions, you're probably not going to pay much attention to the other
00:24:03.660
solutions because you're so focused on making this one thing work that you got.
00:24:07.280
You know, that's a really great observation. I had never thought of that before, despite the fact
00:24:11.500
that I spent a lot of time thinking about cognitive biases. I actually, that's not in the book. And I
00:24:16.800
don't know that I've bumped into that before. I think that's an excellent point. You know, somebody
00:24:20.680
committed, and I'll just, I'll, I'll say it back to you to see if I got it right. I mean, someone running
00:24:24.780
the Betamax division will have a certain view of the world and their ability to interpret conflicting data
00:24:30.500
will be colored by the fact that they've just spent the last three years hammer and tongs making
00:24:35.060
the existing strategy work. Right. They're going to be necessarily handicapped when it comes to
00:24:42.360
understanding and correctly interpreting the viability and the plausibility of alternative
00:24:47.680
outcomes. No, yeah, that's, that's, that's what I was thinking. When you were talking about that,
00:24:51.500
that's one thing that came to my mind. So that's one solution. So that you do this, you separate who
00:24:55.820
manages commitment, who manages uncertainty. Do, do a lot of companies do that or no? What do you
00:25:01.360
think? I think it's, I mean, you know, I'd love to say that everybody read my book and thought it
00:25:06.060
was brilliant. Sadly, I can't make that claim. I do think that it's not uncommon in organizations
00:25:12.900
for there to be kind of a de facto, to de facto kind of make those sorts of separations. So the notion
00:25:18.840
that somebody is worrying about operations and somebody else is worried about strategy is not,
00:25:23.320
that that's, that's not a particular breakthrough. Right. So I think you see
00:25:27.300
inklings of that hints of that in most organizations, but I don't think it's something
00:25:32.120
that is explicitly pursued. I think that in, and I see this in my consulting work and in working with
00:25:38.820
clients in a variety of organizations. Indeed, it's why consultants can be valuable to their clients
00:25:43.400
is that it's only too common for the urgent to push out the important to use a cliche.
00:25:49.600
And, and what that translates into as often as not is that the important is executing on the
00:25:55.600
current strategy and the urgent rather. And the important is thinking about the uncertainty and
00:26:00.080
that's what can get overlooked. You know, you know, what came to mind who does this, the military
00:26:04.720
has separation between commitment and uncertainty. Made me think of like World War II. So you had
00:26:09.820
Eisenhower, who was, who's seen over overseeing the European operation. And like, he only thought
00:26:15.080
about the big picture stuff. Like that's the only thing he, he didn't, he didn't even think about
00:26:19.980
like the, the battles. I mean, he thought he told what you need to do, but he didn't think about
00:26:23.920
logistics or what he let other people take care of that stuff and the commitment part. But then he
00:26:28.880
was still busy thinking about, well, how will this play out in the longterm? He was thinking about
00:26:32.900
ally ships he had to make and managing people. So he was, he was always staying, he always stayed
00:26:37.860
high level. He never got down in that commitment part.
00:26:40.160
Yeah. I think that's a good point. And, and, and that works when you have soldiers in the field
00:26:45.300
who are really good at their jobs. And it makes me think that a few years ago, I read Shelby Foote's
00:26:50.460
the civil war narrative, and it goes into great detail on the relationship between Lincoln and
00:26:55.460
McClellan. So Lincoln, unfortunately had to pay attention to the details because McClellan
00:27:02.340
Right. All right. So a requisite uncertainty is one way you can manage the strategy paradox.
00:27:08.440
The other part is strategic flexibility. What is, what does that look like?
00:27:13.600
Yeah. So, so we've, we've kind of touched on that a little bit, right? So strategic flexibility has
00:27:17.440
the two components, one of which we've touched on, which is requisite uncertainty. And the other
00:27:22.720
is the assembling a portfolio of assets and capabilities that allow you to change your strategy
00:27:29.940
much more quickly than you would have been able to otherwise. So that's some of what I was alluding
00:27:33.980
to before in my counterfactual on Sony example. And indeed it's, it's what I spent a fair bit of
00:27:39.640
time studying in, with the companies that I examined for my, for my doctoral thesis is that
00:27:45.240
they are, they actually go out and start purchasing other companies, right? That have capabilities and
00:27:52.000
assets and operations in potentially adjacent fields, right? So going all the way back to where you
00:27:57.480
started the conversation, when you think about technological and media convergence, you had phone companies
00:28:02.880
buying media businesses, right? So this was back many years, BC, what was then known as BCE, now Bell Canada.
00:28:09.920
So BCE got into the media business and they purchased a satellite TV capability. Now, did they think there
00:28:16.160
were any clear synergies between long distance services and satellite TV? Not particularly, but they had a view
00:28:23.160
that said under certain circumstances, the ability to broadcast television was going to be important in its
00:28:29.440
competitive battle with cable, should the cable companies actually start offering phone services
00:28:34.420
over their cable infrastructure, which they have since begun to do. And so Bell BCE's strategic
00:28:41.180
flexibility was born of assembling this diverse set of assets, not because there were clear synergies
00:28:48.000
among them, but because there might be clear synergies among them at some point in the future, should the world
00:28:54.220
turn out in one way versus another. So that's not an excuse to go buy everything you can think of
00:28:59.340
because you run out of money before you run out of things to buy. But it is a reason to think very
00:29:04.760
carefully about where you need to place some potentially strategic bets. And it's because they're
00:29:10.960
potentially strategic as opposed to actually strategic that we refer to it as, if you will, strategic
00:29:16.200
flexibility. And that whole strategic flexibility label is intended to be a bit of an oxymoron,
00:29:22.200
right? Strategies about commitment, flexibilities about not being committed. So we're going to glue
00:29:26.860
the two together. And how do you, how do you make options for yourself, right? Without overwhelming or
00:29:34.000
diluting what you do, like taking away from like that, what the main strategy that you've picked?
00:29:39.440
Absolutely. So, and, and so now you've, and now what you've done is put your finger on what the limits
00:29:43.800
of strategic flexibility are, right? So I went on about how commitment is great, but has its limits and
00:29:48.940
the same for adaptability. You know what, strategic flexibility, I think is terrific. And you've run
00:29:53.340
into limits there too, which is, it's very possible to overdo it, right? If, if, if all of a sudden
00:29:58.860
every acquisition is justified in virtue of its option value, well, now you've got seemingly carte
00:30:05.760
blanche to go buy whatever you want at whatever price you want, and you can make the wrong choice.
00:30:10.680
So it does require ultimately managerial judgment to say, we will go this far and no further,
00:30:16.820
right? So you're making a subjective call on the nature of the risks you face and the value to the
00:30:24.100
organization of hedging those risks in one way versus another. Are there any companies today that you
00:30:31.320
see who are applying this strategic flexibility and using requisite uncertainty? Yeah, not, not highly
00:30:37.400
visible companies that, that, that make the news. I think in a lot of what we see in the most salient
00:30:42.840
markets today, it really is dominated by very large and very successful companies because a lot of
00:30:49.380
competition in the industries that we care about most is driven by, by network economics and very
00:30:55.880
nearly winner take all outcomes. So a lot of the organizations that I have tended to work with
00:31:01.080
these days, I alluded to it earlier, are in places like smaller organizations in industries like medical
00:31:06.580
devices or transport or manufacturing and so forth. And I think they're, they are doing their best to try and
00:31:13.580
build the kinds of portfolios that will help them cope with a number of uncertainties. One of the most salient of
00:31:19.160
which these days is climate change, because that arguably will require in many instances, a wholesale shift in,
00:31:27.220
in how literally how they power their organizations.
00:31:30.380
I imagine too, the pandemic has sort of brought the, you know, made the strategy paradox bear in a lot of
00:31:37.480
organizations. They probably weren't even thinking about a pandemic, a global pandemic affecting their
00:31:42.120
business. Yeah, it's an excellent point. I mean, I almost, I'm tempted to put the pandemic in the
00:31:47.380
short run and we're still kind of in the short run, right? It's been six months and not a strategic
00:31:53.300
uncertainty, but really a, a, a truly transformational exogenous shock to the system. And it's unclear
00:32:01.220
as yet whether that will result in fundamental strategic changes in organizations or whether
00:32:07.200
we sort of try and right the ship and get back to where we were. I think in some cases it will be
00:32:12.900
transformative. And in other cases, it will be an enormously painful shock to the system, but we will
00:32:18.380
in fact, go back to largely what we were before. So the jury's kind of out, or let me say that again,
00:32:24.120
it's, um, I think it's context specific what the impact of the pandemic will be on different
00:32:30.740
So this book is geared towards businesses and organizations, but as I was reading the strategy
00:32:35.080
paradox, I could see the strategy paradox play out in my personal life, right? Like you're in college
00:32:40.500
and you have to make a decision about what you're going to do for your future. It's like, well, I'm going to go to
00:32:45.480
law school and you have to, in order for that strategy to work, it has to, you have to commit
00:32:50.600
to it. Right. But it might end up, you go through law school and you figure out, man, I don't like this
00:32:55.440
at all. Right. And so you, you, you were, you were, you were on the uncertainty was like, do you, is your
00:33:01.960
future self actually going to enjoy the practice of law? I mean, have you thought about the strategy
00:33:09.200
A little bit. Yeah. I mean, it's a, your comment reminds me of one of the many lawyer jokes that we, I'm sure you got
00:33:14.540
more of them than I do, but you know, the only people who hate law more than law students are
00:33:19.100
lawyers. And in fact, law schools, when I was looking at it, one of the ways they sell themselves
00:33:24.300
to you to say, look, don't think that if you go to law school, you have to be a lawyer, you know,
00:33:27.720
a present company would, would demonstrate same, right? I mean, law school has all manner of
00:33:33.320
applicability. And so they're really selling you based on its optionality, right? In the same,
00:33:38.720
and, and, and indeed when I was looking at a philosophy degree, the chairman of the department said,
00:33:43.600
look, you know, we won't go become a professional philosopher, at least that's not the odds, but
00:33:48.040
here's why it's helpful, right? So they sell you on its optionality at that stage in your career.
00:33:53.060
And it's, I guess my view of it is that the, when it comes to an individual, the strategy paradox may
00:34:01.720
provide some, some metaphorical guidance, but it's not clear to me that it could be taken literally
00:34:08.620
because we don't have enough resources and we literally can't do two and three things at once.
00:34:18.180
So it's, you know, the, the, the portfolio approach to your life is really kind of tricky.
00:34:23.120
You know, if you think about your relationships, it's, you want to have a healthy relationship with
00:34:28.180
a significant other. It's probably a bad idea to think about the thing is spend too much time
00:34:34.260
thinking about what you're going to do if it fails. Right. Right. You know, keep your, keep your
00:34:40.100
match.com profile live after you've been going out for six months. I, you know, that's probably not
00:34:45.500
healthy. Yeah, exactly. I'm, I'm no psychologist. I'm not going to offer any advice on that. I'll
00:34:49.360
just tell you that from where I'm sitting, that sounds like a bad idea. Well, it sounds too,
00:34:53.080
for individuals or even like really small, like a small business, they have more room to adapt.
00:34:58.500
Like they're, they're more able to adapt better than larger businesses or larger organizations.
00:35:02.120
I think that's an excellent point. Yes. And, and perhaps that applies to individuals too,
00:35:05.820
right? So your ability to adapt and change is such that you actually don't need the overhead
00:35:11.240
that comes with trying to build strategic options, right? You can, you can kind of think about what
00:35:16.140
you might do, but you don't actually take any action to prepare for it because if it turns out
00:35:20.060
you have to do it, well, then you can just go do it, right? You don't, you don't have to
00:35:24.380
prepare in that way. Gotcha. That's different from contingency planning. I'm not saying, you know,
00:35:29.140
don't have some cash in the bank and in case you hit a rough patch that, but that's not what we're
00:35:33.960
talking about. I mean, the big takeaway I got from this book was, you know, when you, if you are
00:35:38.820
successful or have organizations successful, or even on the personal level or you fail, might, you
00:35:45.060
might not, you might've done everything right. You might, the decision-making process was probably
00:35:49.140
the right thing to do. You might, you shouldn't take it so personally or the organization shouldn't
00:35:54.820
beat themselves up because they did everything right. They, they just, they just need to have
00:35:59.640
more flexibility in their system. Yeah. I think that's, um, I think that's, I think that's a,
00:36:04.220
I think that's a good point. And in fact, it relates fairly directly to how people tend to talk
00:36:09.200
about innovation, right? I mean, they'll talk about innovation and say, look, it's not like everything
00:36:12.680
succeeds. You can do everything right and it doesn't work out. And you have to be, you have to be at
00:36:18.440
peace with the fact that, that, that failure is an option. And I guess what the strategy paradox
00:36:25.420
prescribes in the content with strategic flexibility in particular is that here's something you can do
00:36:32.160
about that. So when it, when what you committed to would have otherwise failed, you're actually in
00:36:39.240
a position to pull that out of the fire and save it. Well, Michael, this has been a great conversation.
00:36:44.120
Where can people go to learn more about your work and other books you've written?
00:36:46.760
Any of the online booksellers will have the four books that I've done available. If you're
00:36:52.540
interested in what I'm doing these days at Deloitte, you can look me up on the Deloitte website,
00:36:56.520
D-E-L-O-I-T-T-E.com. And yeah, so that's, uh, that would be the first port, first port of call.
00:37:04.160
Fantastic. Well, Michael Rayner, thanks for your time. It's been a pleasure.
00:37:08.360
My guest today was Michael Rayner. He's the author of the book,
00:37:10.560
The Strategy Paradox. It's available on amazon.com. Check out our show notes at
00:37:13.780
aom.is slash strategyparadox. We can find links to resources. We can delve deeper in this topic.
00:37:25.680
Well, that wraps up another edition of the AOM podcast. Check out our website at
00:37:29.240
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