The Dirty Little Secret Of Strategy

Tony Jackson The business of corporate strategy seems to be making a comeback. For some years it was in the doldrums, dismissed by critics as the mere churning out of five-year plans, which were duly filed and ignored. Now many companies are thinking again.

Having spent years improving efficiency, they have become preoccupied with increasing sales. To do that, they need a clear description of where their business is headed; in other words, a strategy.

Gary Hamel is a prime beneficiary of the shift. For a decade until 1993, he taught strategy at the London Business School. In 1994, he and C K Prahalad published one of the best-known business books of the 1990s, Competing for the Future.

Hamel is now a guru. His price tag, according to one recent report, can run to $150,000 for two days' work.

Though Hamel still teaches at the London Business School, he moved back to California in 1993. "Silicon Valley", he says, "is a very good vantage point to see the future coming." He has also set up his own consulting company, Strategos.

As might be expected, Hamel makes grand claims for the strategic process. "New wealth creation", he says, "is almost always the result of industry revolution. That in turn is the result of strategic innovation. I am as convinced as I can be that the capacity for strategic innovation will be the next competitive edge for companies around the world."

In most industries in recent years, he says, most of the new wealth has been created by newcomers. "If you read about companies in the FT, you tend to see two kinds of stories: the revolutionaries who started with a clean sheet of paper, like Netscape or Ikea, and moribund companies like General Motors which are trying to catch up with someone else's future."

There is a snag. "We all know a strategy when we see one. We can look at Virgin Atlantic or Body Shop and say 'wasn't that a good idea'. In business schools, we pin those strategies to the wall like butterfly specimens and study them. But it's all after the fact."

In that respect, Hamel argues, the entire strategy industry is built on sand. "Companies don't produce strategies, just plans. No company will tell you its planning processes produce new wealth-creating strategies."

"The dirty little secret is that we don't have a theory of strategy creation. We don't know how it's done."

Logically enough, he has set himself to finding out. The issue is straightforward: how does a

company become an industry revolutionary?

At this point, Hamel slips into lecture mode. Think in terms of four rules, he says: the conditions that have to be created to improve the odds of a wealth-creating strategy.

"First, create new passions. In the past, we've driven the emotions out of strategy. The field is dominated by people who trained as economists and engineers the two disciplines which have the least grasp of what it is to be a human being.

People like Richard Branson or Anita Roddick are driven by a deep desire to make a difference. They don't get up in the morning wanting to increase shareholder value."

Second, he says, new voices must be brought into the strategic process. "Companies miss the future not because they're fat and lazy they mostly aren't any more but because they're blind. They have too little genetic diversity. There's an old saying that land is a mystery to fish. By the time they find out about land, it's too late."

And of course, he says, the lack of genetic diversity is most acute at the top. "The pyramid in an organisation is typically a hierarchy of experience. What you need is a hierarchy of imagination."

That means involving more young people, and more people at the geographical periphery.

"Corporate imagination goes up with every kilometre you go from head office. People at the periphery have fewer resources, so they need to be more creative. And they're far enough away not to get stamped on when they try something original."

Third, companies must

create new forms of conversation about strategy. "You need to create teams which are a deep diagonal slice across the organisation, cutting across the businesses, the hierarchies and the functions. Every place there are partitions, you need to get conversations across them. That's how you get ideas

creation."

Finally, he says, companies need new perspectives. At any given point, every industry is governed by certain orthodoxies. New wealth is created by challenging them.

Take The Body Shop, he says. "One of the most fundamental orthodoxies in cosmetics was that women suffered from lack of self-esteem. Anita Roddick started from the premise that women already had self-esteem, and just wanted nice things to put on

their skin."

Or take the way CNN exploited changes in regulation and technology to steal a march on the BBC in global news.

"One thing I've come to

believe is that it makes no sense trying to predict the future. There is very little inevitable in this world. Microsoft and Wal-Mart did not have to exist. It's more a

question of identifying the

revolutionary portent of changes which have already occurred."

Behind all this is a recurring theme. Imagination, Hamel believes, is more widely distributed in organisations than top management generally allows.

It remains management's

job to bring ideas together but it must renounce its monopoly on producing those ideas in the

first place.

He draws and explicit parallel with the quality revolution of a decade ago. There, the old command-and-control approach to organising work gave way to a system involving input from the workers themselves.

Companies have come to recognise that workers have brains, he says. But they are still only applied to local tasks. They must be set to work on broader issues.

"The test for any company today," Hamel concludes, "is whether they can tell me the five fundamental ways they're going to change their industry in the next 10 years.

"If they can't, somebody else will."