Andy Grove was a master of corporate strategy. One of the later collaborations toward the end of his career was a paper he co-authored with Robert Burgelman from Stanford titled “Let Chaos Reign, Then Rein In Chaos – Repeatedly: Managing Strategic Dynamics For Corporate Longevity.1“ The work is based in part on complex adaptive system theory and has some great examples of strategic across different system domains that I would like to discuss and share.
Grove and Burgelman’s paper begins with a description of non-linear strategic dynamics where an industry participant’s actions changes the rules of the game. This is well aligned with what could be described as complex system where the agents’ actions within a complex system change the system – co-evolution. I also like their ideas on the dangers of entrained strategies. Craig Barrett’s (CEO after Andy) metaphor of the “creosote bush conundrum” is used to describe how entrained strategies that were so successful in the past can jeopardize a firm’s future. A creosote bush is a desert plant that releases poison to prevent other plants from encroaching. The metaphor
“refers to the strategic inertia that a successful core business experiences as it gets locked-in to its product-market environment. This makes it difficult to explore and exploit new business opportunities…”
The creosote brush problem reminds me of the extreme area of the complicated domain where “tyranny of the expert” tends to occur. The creosote bush conundrum could also be label as the “tyranny of successful strategies.” Under this extreme condition, most attempts to invest in innovation and exploratory strategic actions are met with either resistance or outright rejection for fear of destabilizing the status quo. Entrainment breaking actions, intentional or otherwise, are sometimes required shift the strategic thinking into a chaotic and innovative space where rules are broken and constrains are lifted. Helping teams navigate this transition prior to an externally imposed crisis is a crucial leadership capability needed to ensure the long-term survival of the firm.
The two core questions of the paper are
- What is the right balance of exploration and exploitation activities?
- How to balance induced strategy-making processes that optimize for strategic fitness with autonomous strategy-making processes that optimize the firm’s ability to evolve, evolvability?
Grove and Burgelman describe the induced process as tops-down strategy to exploit opportunities in a stable, familiar environment (e.g. traditional annual strategic planning cycle). The autonomous process is tends to originate from middle-management or operations fortuitously, and it is used to explore new opportunities outside the scope of the firm’s existing strategy (e.g. skunk works).
Grove and Burgelman also draw a distinction between strategic actions that are rule-abiding vs rule-changing. Rule-abiding actions are consistent with prevalent, normative rules by which players engage in a stable industry environment. They tend to result in linear and fairly predicable outcomes (e.g. sales promotion campaign). In contrast, rule-changing actions change the interaction patterns between the players. The outcomes of rule-changing actions are non-linear and difficult to predict in advance. They can also have unintended consequences (e.g. merger with value chain partner become more vertically integrated). The following quote on the recognition of rule-change implications reminds me of distributed cognition and sidecasting techniques:
“[A firm’s] capacity for ‘strategic recognition’ of the rule-changing implications of a strategic action after it has been taken but before others see them seems critical. Such strategic recognition requires a mental state of constant alertness – metaphorically called ‘paranoia’2 – widely distributed among [the firm's] leadership”
Sometimes many firms simultaneously engage in rule-changing strategic actions resulting in a period of rule-turbulence or chaos which leads to what they refer to as “run-away industry change.” I think large-scale technology architecture battles can result in run-away change (e.g. iOS vs android vs Windows). I am not quite sure how to characterize strategy in the simple domain. The best description I can think of at the moment is rule-stagnation or no change. Feel free to reply with your own comments on what language to use here.
So what is the right balance of exploration and exploitation activities? For me this question is related to portfolio theory and portfolio management. Stay tuned for a future post on this topic.
- “Let Chaos Reign, then Rein in Chaos – Repeatedly: Managing Strategic Dynamics for Corporate Longevity” by Robert A. Burgelman and Andrew S. Grove, Strategic Management Journal, 28: 965-979, 2007. Available for download here
- Grove AS. 1996. Only the Paranoid Survive. DoubleDay:New York.