One of the great challenges for organizations in the current economy is making strategy under the uncertainties posed by turbulent environments, intensified competition, emerging technologies, shifting customer tastes and regulatory change. Executives often know they must break with the status quo, but there are few signposts indicating the best way forward.
A core assumption in much of strategic management research is that more accurate forecasts of future competitive actions or the future value of certain business capabilities will lead to strategic success.1 Executives have long been exhorted to conduct analyses of internal and external environments and construct scenarios of the future. However, seeing strategy in this way has some serious weaknesses. It assumes that accuracy can be achieved through rigorous analysis and conscientious efforts to overcome individual biases in perception. It also assumes that the process will be relatively frictionless and primarily analytical.
There is an important tension at work here. Because the future is essentially unknowable, leaders must rely on the past for information and insight. Moreover, given that the future is unknown, there are likely to be differences and conflicts within the organization about what that future might hold. Such conflicts can impede progress on the development and execution of new strategies — especially innovative strategies that depart significantly from a company’s current approach to the market.
Studies have pointed to the “abject failure”2 of most forecasting efforts to attain the desired precision. While strategy researchers tell managers they should project into the future, we tell them little about how to do this. As observed by an executive at CommCorp (a pseudonym for a communications technology corporation that we studied in 2002, shortly after the bursting of the Internet bubble):
Who today in this marketplace has accurate data? I mean, nobody, literally nobody. It is very hard. You have a gazillion points right now where, you know, everybody — economists, analysts, companies — fails to forecast accurately … so forecasting is very difficult, or you can say impossible, because [of the] dramatic change.
To study how managers make strategy in a highly turbulent environment, we took an in-depth look at five technology strategy projects inside the Advanced Technology Strategy Group at CommCorp. (See “About the Research.”) Our study aimed to understand how managers make strategy in conditions of considerable uncertainty. In our research, we followed the five technology strategy projects closely, from their inception to critical strategic choices about resource allocation. Some of these projects ended up conforming quite closely to the status quo, making only incremental changes, while others resulted in radical strategic choices and actions.
Our study revealed that future projections are intimately tied to interpretations of the past and the present. Strategy making amid volatility thus involves constructing and reconstructing strategic narratives that reimagine the past and present in ways that allow the organization to explore multiple possible futures. In comparing strategy projects within CommCorp, we found that the more work managers do to create novel strategic narratives, the more likely they are to explore alternatives that break with the status quo.
In other words, to get to an alternative future, you have to create a story about the past that connects to it. For instance, The New York Times is working to stay relevant in a landscape where newspapers are being crowded out. A recently leaked New York Times internal strategy report focused on a vision of the newspaper’s increasingly digital future. But the report’s authors also drew on the paper’s past in framing a strategy for the company’s future. In one section of the report, called “The Paper of Record, Version 2.0,” the report’s authors urged the company to do a better job of “tagging” its digital content to make it more easily findable. To support their argument, the authors drew on a historical example about how The New York Times gained a competitive advantage a century earlier by creating a comprehensive index of the newspaper for libraries and researchers.3
In that instance, the reimagined past was being used to enable an innovative future — by invoking a similar successful innovation from the company’s history. But in some cases, a company’s story about the past dominates and limits the future. For instance, although Amazon.com Inc. has shifted from being an online store to also producing its own hardware (the Kindle e-reader and, more recently, the Fire phone), the company linked its device strategy to a story about how these products make it easier to shop at Amazon.4 Indeed, as critics have pointed out, the design of the new Fire phone was so shaped by this narrative that one of its few distinctive features is a scanning technology that allows the user to easily scan an item and link to a buying opportunity at Amazon. As one commentator noted, this feature of the Fire phone can be “off-putting because it seems like little more than a way to get people to buy more products from Amazon.”5
Creating New Strategic Narratives
Within the five Advanced Technology Strategy projects at CommCorp that we studied, multiple and varied interpretations of the future were in play. In comparing the unfolding of CommCorp’s strategy projects, we found that strategy making was about constructing new narratives that tie together interpretations of the past, present and future. That is, effective projections of the future must be connected to resonant understandings of the present and past.
For example, at the time we studied CommCorp, the company had historically pursued a “technology push” strategy, and the job of marketing was to sell “cool technologies.” However, some managers had begun to rethink this history, arguing that it had led CommCorp to the crisis the company faced during the bursting of the Internet bubble. While many saw CommCorp as having focused consistently on optical technologies for the backbone of the Internet, others argued that CommCorp’s real history was in serving a broad set of communication needs (as indicated by its name, “Communications Corporation”). CommCorp had primarily sold products to the telecom carriers (such as Verizon Communications Inc.), but managers began to debate whether this represented a deliberate choice not to serve other customers such as enterprises or whether the narrow focus was simply due to historical habit. These questions were reflected in a variety of interpretations of the present problems and priorities that people thought the new strategies would address.
The past, present and future were thus all interpreted and reinterpreted in the CommCorp strategy-making process, and these interpretations were multiple, interdependent — and sometimes conflicting. At the time we studied the company, the crash in the market for its existing products had forced everyone at CommCorp to reevaluate the company’s historical strategic trajectory. This questioning enabled one manager to reinterpret CommCorp’s history, not only as a provider of big-ticket hardware for the backbone of the Internet but also as a provider of communications technologies across the whole network. By seeing the company as all about “communications,” the manager was able to propose a project for improving access at the “last mile” of the network. This reinterpretation made a radical shift in a future vision possible: CommCorp could provide small-ticket, standardized products as well as customized, high-end technologies.
New visions of the future also triggered reconsiderations of current concerns. For example, inspired by the potential for convergence between networking and computing, one project leader was eager to get CommCorp to move in that direction. On the other hand, he worried that convergence “steps on everybody’s toes at CommCorp,” requiring them “to change plans across the board.” He described this tension as “a tug of war [between] wanting to be entrepreneurial and CommCorp’s resource limits.” The more the participants reconsidered present concerns, the greater the tensions that arose. However, it was through such interactions that new connections were built among the past, present and future.
A particular view of the future shaped and was shaped by certain understandings of history and present priorities. Envisioning new futures provoked reassessments of the past and present, just as new understandings of current concerns triggered new imaginings of the future and alternative versions of history. Negotiating these interpretive differences proved to be central to strategy making in practice. We refer to this activity as constructing strategic narratives that link together efforts to re-imagine future possibilities, rethink past routines and reconsider present concerns. (See “Constructing Strategic Narratives.”)
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This work occurred in team discussions, in senior management meetings and through the development of strategy documents in which company managers negotiated and resolved tensions around different understandings of what had happened in the past, what was at stake in the present and what might emerge in the future. Sometimes the debates were fast and furious, involving strong disagreements in views. However, strategic choices were only possible if managers could settle on a particular narrative. We found that for a narrative to guide strategic choices, it had to be coherent, plausible and acceptable to most key stakeholders within the company. (See “How to Create a Compelling Strategic Narrative.”) For example, the narrative one team leader constructed focused on a radical vision of convergence as an alternative to optics (making it coherent), which was consistent with the Advanced Technology Group’s charge to act as the “investment portfolio” for CommCorp (making it plausible), and which would be developed on a limited budget (making it acceptable). Narratives that fit these criteria allowed managers to shift from disagreeing or deliberating about meanings to implementing strategic choices, thus enabling the organization to move forward in the face of uncertainty. If a narrative is not acceptable to most key stakeholders, then managers must continue their efforts to construct and reconstruct the narrative, drawing links between the past, present and future in new ways.
Not all proposed strategic narratives met the criteria of being coherent, plausible and acceptable within the organization. For example, one group at CommCorp proposed a strategic narrative that others refused to accept, and opponents of the project suggested that that particular narrative was implausible and did not fit coherently with corporate history. Only after the sponsors of the project let go of their commitment to their narrative were they able to gain buy-in for their project — but the lack of a compelling new narrative meant that the project’s strategy ended up being largely incremental.
Work to construct strategic narratives is not easy, linear or straightforward. We found that decisions are only reached if differences in interpretations of the past, present and future can be resolved and constructed into a narrative. At the same time, changes in the external environment or internal efforts to make change can lead to breakdowns in narratives. Such breakdowns then trigger more work to construct a new narrative.
While breakdowns may ultimately lead to new agreements and new strategic decisions, they make decisions difficult to reach in the short run. When newly constructed narratives are not deemed coherent, plausible or acceptable, the resulting breakdowns compel managers to continue seeking alternative connections among interpretations until they can settle on a narrative that enables the organization to move forward. If they don’t settle on a narrative, managers have little basis upon which to make decisions.
The more intensively managers reimagined the future, rethought the past, and reconsidered present concerns, the more their projects produced strategies that represented radical departures for the organization. It was not that technologies a priori represented greater or lesser change, or that new technologies forced people in the organization to engage more intensively in constructing strategic narratives. Rather, the evidence from CommCorp suggests that the degree of change represented by a new technology strategy was related to the degree to which the managers in the organization negotiated their interpretive differences to produce alternative understandings of the past, present and future.
Implications for Executives
By using ethnographic techniques to look at how strategy actually gets made, we see that forecasting the future is not the sterile or precise analytical process that both scholars and executives might have hoped it would be. Drawing on our in-depth examination of strategy practice, we offer four lessons about the messy business of making strategy.
First, making strategy is not about accurate forecasting. You must consider the multiple interpretations of present concerns and historical trajectories that help to constitute those forecasts. Though the future will likely not turn out the way it was projected, this does not mean that projections do not matter. Articulating projections shapes attention, deliberation, investment and effort.
Second, achieving an innovative future is not about forgetting the past. Some people have suggested that new strategies require strategic “forgetting,” so that organizations are not anchored in old ways of doing things.6 We found instead that managers need to engage directly with the past to shape a narrative that connects a particular understanding of history to a new future direction. Constructing new narratives is a way to achieve change while at the same time showing how the new strategy achieves some form of continuity with a (reimagined) past. In other words, history matters — but not in the way you might think. The past is not a singular guide to the future. In fact, it is the multiplicity and ambiguity of experiences of the past that enable the different interpretations that can generate innovative alternatives.
Third, strategy making is not about getting the “right” narrative. It’s about getting a narrative that is good enough for now, so that the organization can move forward and take action in uncertain times. This recognizes that strategy will in some ways always be evolving and “emergent.”7 Our view of strategy making suggests that the narratives that managers construct will shape the direction of future actions, just as those actions, in turn, will lead to further reconfiguring of the company’s strategic narratives over time.
Fourth, breakdowns in the strategy-making process are not failures but rather opportunities for learning and for reconfiguring the strategic narrative. Breakdowns and disagreements in the strategy-making process create openings that can generate alternative narratives. While breakdowns can sometimes impede progress, they can also be productive by provoking a search for new interpretations and novel possibilities.
A model of strategy making that focuses on strategic narratives provides insights into a long-standing puzzle about the sources of competitive advantage: Is company performance mainly derived from luck or managerial foresight? Evidence from our field study suggests that both past legacies and future projections shape future outcomes. Past experience can manifest itself in routines that maintain operations effectively. But the more such routines are reproduced, the more organizations can suffer lock-in.
Recognizing that organizations can get stuck in ruts, leaders may want to provoke breakdowns in a company’s existing strategic narrative by challenging conventional wisdom within a company. Such interventions would involve the construction of new strategic narratives that can prevent organizations from getting locked into a strategy that is constrained by routinized understandings of the past, myopic views of the present and limited visions of the future.
1. See, for example, J.B. Barney, “Strategic Factor Markets: Expectations, Luck, and Business Strategy,” Management Science 32, no. 10 (October 1986): 1231-1241; J.B. Barney, “Firm Resources and Sustained Competitive Advantage,” Journal of Management 17, no. 1 (March 1991): 99-120; M.A. Peteraf, “The Cornerstones of Competitive Advantage: A Resource-Based View,” Strategic Management Journal 14, no. 3 (March 1993):179-191; and C.K. Prahalad and G. Hamel, “The Core Competence of the Corporation,” Harvard Business Review 68, no. 3 (May-June 1990): 79-91.
2. M.L. Barnett, W.H. Starbuck and R.N. Pant, “Which Dreams Come True? Endogeneity, Industry Structure and Forecasting Accuracy,” Industrial & Corporate Change 12, no. 4 (August 2003): 653-672.
3. The New York Times, “Innovation” (New York, N.Y.: New York Times, Mar. 24, 2014), 41-43 accessed via www.scribd.com.
4. See for example, R. Cheng, “Kindle Fire HD: Amazon’s Anti-Apple Profit Engine,” Sept. 6, 2012, cnet.com; and F. Manjoo, “Why Did Amazon Make a Phone? A Conversation With Jeff Bezos,” June 19, 2014, bits.blogs.nytimes.com.
5. See S. Jacobs, “The Amazon Fire’s Fanciest Features Fail to Impress,” MIT Technology Review, Aug. 5, 2014. See also G.A. Fowler, “Amazon Fire Phone Review: Full of Gimmicks, Lacking Basics,” Wall Street Journal, July 23, 2014; and T. Duryee, “Amazon Fire Phone Nosedives on Company’s Bestsellers List, Dropping to #61 After Debuting in Top Five,” June 30, 2014, GeekWire.
6. V. Govindarajan and C. Trimble, “The CEO’s Role in Business Model Reinvention,” Harvard Business Review 89, no. 1-2 (January-February 2011): 108-114.
7. H. Mintzberg and J. Lampel, “Reflecting on the Strategy Process,” Sloan Management Review 40, no. 3 (spring 1999): 21-30; and H. Mintzberg and J.A. Waters, “Of Strategies, Deliberate and Emergent,” Strategic Management Journal 6, no. 3 (July-September 1985): 257-272.
i. S. Kaplan and W.J. Orlikowski, “Temporal Work in Strategy Making,” Organization Science 24, no. 4 (July-August 2013): 965-995.