Organisations need to encourage 'meta-thinking': Martin Reeves

He says, in today's environment a company does not need one approach to strategy, but five

The era of the Big Ideas of the 1970s and 1980s seems to be over. What is happening to strategic thinking these days?

I agree that the marketplace for big ideas seems a little tired, in the sense of single strategy frameworks that purport to be panacea for all situations. But ironically the need for good strategy has only increased. The analysis I undertook for my book Your Strategy Needs a Strategy shows that the velocity of business has increased two-fold in the last 30 years, the performance gap between winners and losers has increased markedly and the longevity of public corporations has decreased to about 35 years.

The inconvenient fact is that the diversity of strategic environments has increased massively, such that no single prescription fits all circumstances. Instead, we need a contingent approach to strategy, in which our thinking and execution depend on how predictable, shape-able and how harsh the particular situation being faced is.

The incidence of companies flaming out seems to be rising but we also see fewer companies like WPP or Nokia that successfully made major shifts in their core businesses. How do you explain this?

Companies are certainly flaming out quicker, and we have actually measured that. If you put the portfolio of all businesses in the US economy on the BCG matrix, the rotation around it has been twice as fast compared with 30 years ago. Also, the mortality of corporations has increased massively: the probability that a corporation won’t be around in five years used to be five per cent; now it’s 32 per cent. That’s basically because of technology change. The worst thing to do in that situation is to focus only on issues of efficiency — managements need to think deeply about how to renew the vitality and strategy of the corporation.

Has anyone done this credibly and sustainably?

Amazon is one example – and I’m not just saying this because it’s big and famous. Amazon has a “Day One” philosophy of thinking like a start-up, staying paranoid and a culture of experimentation so it constantly reassesses things based on data. It is not afraid to experiment because it understands that in the long term the biggest risk is not to experiment and it has also been serially successful in building multiple new businesses. Alibaba is another good example of a company that aspires to be adaptive: it says, “the status quo is change”.

In today’s environment a company does not need one approach to strategy, which is historically to do planning, but five, because different parts of the business will be in different stages of their accelerated life cycle and in different market situations. There are plannable, stable businesses; the adaptive businesses, where we need the tech paradigm of adapting to change; the visionary strategy, which involves creating brand new spaces; shaping strategy, which is about cultivating and managing ecosystems (like Amazon and Alibaba); and the renewal strategy, which refers to the fact that about a third to half the companies are trying to fix something that is broken.

Is this what you refer to as “biological thinking”?

Partly. Adaptive-ness stands in contrast to engineered, “Newtonian” systems that are based on the idea that we know everything we have to know and predict and control what we have to. Now even big businesses find themselves in more biologic environments where their little systems are unpredictable in themselves but are also embedded in political and economic systems that are unpredictable -- such as Donald Trump’s presidency and Brexit and so on. This means companies don’t have to worry only about technology disruptions but these issues as well. In such a situation, “planning” is a comforting notion but it doesn’t work very well. The biological approach involves empiricism – you don’t deduce what should work but what actually works.

Does this require the creation of a strategy planning department that is involved in blue-skies thinking?

Biological thinking is not one big idea that is originated in one centralised department that is then applied forever; it is about empiricism, experimentation, adaptation and flexibility and the reallocation of resources. When the whole business model is changing and everything interacts with everything else so you have look at the mutualisms -- the relationships, the dependence. And you have to be prepared for the unexpected. The damage caused by surprises is minimised if you react to them as quickly as possible. That’s harder and harder to do when companies are big and successful -- if you exploit your success too much you atrophy your ability to create future growth options. There’s a parameter called net Present Value Growth Opportunities that can actually measure which companies are renewing their future growth options in proportion to the exploitation of their current growth options. Google is one of those very large companies that is doing some smart things to reinvent itself. One of them is the reorganisation into Alphabet – the name is a pun on words, the idea being that it is betting on “alpha” or cutting edge enterprises. It also has an active process for removing complexity – something very few companies have.

You have spoken of the importance of downtime for CEOs.

Consider what most senior guys in companies do: emails, meetings and taking actions. If their companies were in maintenance mode that would be fine. But today, somebody has to think about what happens next, create ideas. It’s not an optimisation problem — CEOs need to reconceive things and there are nothing to tell them what or how, they have to figure it out from noisy data. This requires meta-strategy and to do that CEOs have to separate themselves from action, and create an environment conducive to reflection. Some CEOs stay at home one day of the week, Bill Gates is famous for his summer retreats where he takes some reading material and goes away. One CEO has this idea that you need to engage with an idea and then put it on the back burner and keep it ready for when your subconscious presents some cues. Others read outside their business to maintain their mental flexibility — they don’t want to become too invested in yesterday’s paradigm.

But how do you institutionalise this process?

The CEO reflecting is not the only element but it certainly models behaviour down the line. The second point is to create ambidexterity: creating organisations in which people can think and execute. You rarely get the poet and the engineer but organisations need those skills. To do this, CEOs need to encourage meta-thinking. There are four ways of doing this. The first is separation, on the lines of the old Lockheed Martin Skunk Works. Second, Corning uses a strategy called “switching”, which involves building teams with mixed skills that apply different skills as the production life cycle progresses. The third is creating an internal ecosystem. For example, the Chinese white goods maker Haier has some 2,000 micro-businesses; each one is a mini-business offering tremendous diversity, and the broader company oversees resource allocation, and so on — it’s a bit like the way Dilli Haat operates, if you like. The fourth is creating external ecosystems. This is how Apple beat Nokia with its 60 per cent market share in a highly regulated environment and fixed cost business. That should never have happened and actually Apple didn’t beat Nokia, but Apple’s multiple hardware and software ecosystems operating in parallel could supply the diversity of capability that it needed to beat a monolith.