The Limits of Strategy

When I look back upon my long career, one of the major factors shaping my views of business, strategy and innovation is the creative destruction that I saw buffeting the IT industry over most of that time.  In particular, having lived through IBM’s own near-death experience, respect - if not fear - for the hurricane-power forces of disruptive change is edged deep down in my psyche.

Why were so many companies in the IT industry done in by such disruptive technology and market changes?  Is it that in spite of all their efforts in strategy formulation, their management was unable to anticipate them and were caught by surprise?  Or it is that, as if actors in a kind of Greek tragedy, they see the changes coming and understand what needs to be done, but are somehow unable to make the needed strategy and cultural transformations?

Nobody has captured the drama that so many IT companies and their leaders went through from 1975 to 2000 like Ernest von Simson in his recently published book The Limits of Strategy: Lessons in Leadership from the Computer Industry.   

With his partner and wife, Naomi Seligman, Ernie founded The Research Board (RB) in the mid 1970s, an IT strategy think tank whose invitation-only membership was limited to the top chief information officers of the largest companies around the world.  Members voted on the top topics they were interested in, and the RB then conducted their research, interviewed top IT company executives as well as other experts, invited them to address their meetings, and then produced a private report available only to their members.

Over the years, the Research Board built a stellar reputation, which gave them direct access to just about anyone they needed to speak to in conducting research on a topic.  CEOs and other senior executives from the IT industry regularly came to their meetings and addressed their members.  In 1999 the RB was sold to Gartner, and it has since continued to operate under different leadership.

I first met Ernie some time in the mid 1980s when I was VP of development in IBM’s large systems division.  The RB was looking at the evolution of the mainframe, and I was one of the people they interviewed.  In subsequent years,  I was invited to come to their meetings and discuss strategies I was working on from time to time.  Around 1990, as we were developing the major mainframe transition to microprocessor technologies and parallel architectures, Research Board members, and Ernie in particular provided us with invaluable early feedback on our strategy.  Over time, Ernie and I have become personal friends.

During his 25 years at the helm of the RB, Ernie had a personal ringside seat from which to observe the IT industry and its various companies and leaders.  Each chapter in Limits of Strategy reads like a well researched case study, - written by someone who was actually on the scene, - of what these different companies and their leaders were living through as they tried to navigate the turbulent water all around them.  He writes in the preface:

“We saw what factors determined the winners and losers.  Above all we learned how disruptive technology can work to destroy even those who understand it well.  And why great leadership is required to escape massive upheavals in markets, technologies and business models.  In essence, why there are limits of strategy.”

He focuses on the major changes that the IT industry, and its four leading companies went through in the early 1990s:

“In our analysis, 1992 was a killing year for the four computer companies most important to business buyers.  All four had been dominant suppliers of minicomputers for the past fifteen or twenty years.  But then came the microprocessor, portable databases, Microsoft, and the Unix operating system, which weakened the hold of computer companies on their existing customers and slashed their profit margins.  On July 16, 1992, the CEOs of both Digital Equipment and Hewlett- Packard were pushed into retirement.  On August 8, Wang Laboratories declared bankruptcy.  In December, IBM halved its dividend for the first time ever, forcing the resignation of its CEO a month later.”

“How did this happen?  Are the deadliest changes unavoidable because strategy is too easily thwarted by cluster bombs such as technological velocity, cultural inertia, obsolete business models, executive conflict, and investor expectations?”

There are no simple answers to these questions.  The leaders of DEC, Wang, HP and IBM were very smart and experienced.  “But all of them were simply overwhelmed by the profound changes in technology, cost structures, business models, and markets disrupting the computer industry.”    

In the end, it may all come down to the limits of strategy, which Ernie analyzes in the last chapter of the book.

“The extreme turbulence of the computer sector in the 1980s provides an intellectual wind tunnel for testing radical survival strategies and effective leadership.  What can be learned from the leading computer companies and the men who led them?  Are there limits to strategy, however brilliant?  Or were these CEOs diminished and even fired simply because of their own managerial inadequacies?”

Several common threads seem to recur again and again through the various cases studied in the book:

“Even when the disruptive technology and its equally disruptive business model are clearly visible, the survival strategy can be nearly impossible to implement.  Incumbents can be hobbled by organizational and physical assets that quickly become boat anchors.  Faced with hard choices, executives can be distracted by traditional competitors doing even worse than they are.   . . . Too often, the only prescription is massive downsizing, but that’s something sitting CEOs find very difficult, especially if they’re a founder or lifelong employee.”

I really like The Limits of Strategy.  It is a very good business book on strategy, leadership and innovation.  But in addition, Ernie is a very good writer, so, this is actually both a serious business book and one that is also enjoyable to read.

Comments

[Chris Flanagan]

Hi Irving - As always, I love reading your posts. I learn something every time. Question for you: do you think today's business schools are adequately preparing the next generation of leader to deal with all the cluster bombs that will inevitably be thrown at them?

I can see why the CEOs of Wang, IBM and Digital (who were raised under the auspices of 'one generation, one business model') might not have seen - or understood - what was staring at them in the mirror. Today is different though.

And I think, as far as the history books go, the successful leader will be judged by his/her ability to guide a business through multiple business models. But are schools preparing them for that?

Would love your thoughts on this.

Cheers from your BIF friend!
Chris

[Irving Wladawsky-Berger]

Are business schools doing a good enough job in preparing the next generation of leaders? I think that while a number of business schools are re-evaluating their curricula and are trying to change to better prepare their students, a lot more that needs to be done.

Earlier this year I wrote a blog - http://blog.irvingwb.com/blog/2010/03/business-management-and-holistic-critical-thinking.html - based on an article by Roger Martin, Dean of the Rotman School of Management at the University of Toronto.

I agree with his views that in order to better prepare the next generation of leaders for the fast changing worls they will be facing: "students needed to learn how to think critically and creatively every bit as much as they needed to learn finance or accounting. More specifically, they needed to learn how to approach problems from many perspectives and to combine various approaches to find innovative solutions."

[Tomforemski]

Surely it's the limits of your business model? Companies do not know how to react to disruptive (to-their-business-model) technologies. I've met with tens of thousands of companies large (Sam Palmissano) and small startups. Once a company knows how to make money they stick with it and they are so focused on it that they don't know how to deal with disruptive technologies. They are on a track and even though they see the train wreck way ahead they can't down-size fast enough or change tracks in time, they slam into the wreck. I see it all the time. It almost happened to IBM, it took Lou Gerstner ten hard years to move the company to a different track. Teaching an elephant to dance, indeed...