If competitive advantage is no longer sustainable, then what? Jim Heskettexamines the latest thinking from Rita McGrath, who attacks agingstrategies for long-range planning. What do YOU think?

04 SEP 2013 WHAT DO YOU THINK?

How Relevant is Long-RangeStrategic Planning?

by James Heskett

From time to time thinking converges around a set of ideas. For us thismonth, the topic is strategy planning and organization. Conventionalthinking and organization that has encouraged us to seek sustainablecompetitive advantage in the past is being questioned in today's businessenvironment. Some are even suggesting that the mind set that has givenus strategic planning concepts such as SWOT (strengths, weaknesses,opportunities, threats) analysis, the "five forces," growth share matrices,five-year plans, and an emphasis on core competencies of the firm maylead to competitive disadvantage in a technology-transformed world inwhich markets, employee and customer mind sets, and innovations, evolveat a rapid rate.

The conversation was stimulated (can it be 16 years ago?) by ClaytonChristensen's work leading to his book, The Innovator's Dilemma. In onesense, the book was mistitled. Some of its most salient materialconcerned issues confronting large corporations facing innovative upstartswith disruptive ventures, the non-innovator's dilemma. But it also dealtwith the challenges of achieving innovation in a world of entrenched ideasabout how products are developed and used. Implicitly, the bookquestioned traditional concepts of strategic planning in an environmentpopulated by increasingly innovative and agile competitors.

Now comes a new book, The End of Competitive Advantage, by RitaGunther McGrath. Hers is a frontal attack on accepted strategic planning

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JAMES HESKETTJames Heskett is a BakerFoundation Professor,Emeritus, at HarvardBusiness School.

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methods designed, in her opinion, for another time. These are methodsbased on the presumption that competitive advantage is sustainable. It's apresumption that she claims "creates all the wrong reflexes" in a world inwhich the best one can hope for is "transient competitive advantage."

McGrath's prescription for achieving transient competitive advantageincludes such things as smaller, faster, more agile organizations--andwhere management-by-consensus is a thing of the past. The emphasis ison marshalling rather than owning assets, including talent. In order toensure the appropriate deployment of these assets from one opportunity toanother, it will be necessary to recentralize control over the resourceallocation process, moving it out of strategic business units (SBUs). Itraises questions about the relevancy of SBUs as opposed to transientteams as a form of organization.

These organizations engage in "shape shifting" based on systematicinnovation and the constant testing of assumptions, all required tomaintain transient advantage. They are organizations designed to createand test options, practicing "continuous deployment," doing things "fastand roughly right" rather than relying on strategic planning as we haveknown it.

McGrath makes her points forcefully, but laments the slow rate at whichthese changes are being adopted in large organizations. If these ideas areso powerful, she asks, "why hasn't basic strategy practice changed?" Is herthinking on target but just a bit ahead of the curve? How relevant is long-range strategic planning and its assumptions of sustainable competitiveadvantage? What do you think?

TO READ MORE:Clayton M. Christensen, The Innovator's Dilemma (Boston: HarvardBusiness School Press, 1997)

Rita Gunther McGrath, The End of Competitive Advantage: How To KeepYour Strategy Moving As Fast As Your Business (Boston: Harvard BusinessReview Press, 2013)

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HUW MORRIS CEO AND FOUNDER, EFFICIENARTA LIMITED

My sense is that our traditional strategic planning tools and techniques can continue to informstrategic direction decisions; however, they need to be used to promote agility rather than inways that can be barriers to flexible reallocation of resources etc. to meet rapidly evolvingcustomer opportunities. For example by strategy task forces that 'hack" rather than as part of along annual strategic planning process and facilitiate more effective "continuous deployment,"doing things "fast and roughly right" etc.

PAUL A. LEPLEY RETIRED (MBA '71)

The idea "to recentralize control over the resource allocation process" reminds me of the rise ofconglomerates in the 1960s: Litton Industries, Gulf+Western, etc. I recall the resentment ofmanagers who saw resources (especially cash) being taken from their business unit and beingplaced into the corporate pile, which was then used to buy other businesses. There is noassurance that those in corporate staff positions will allocate such resources to best advantage.

Central planning was a failure in the USSR.

Be cautious.

SHADRECK SAILI PHD CANDIDATE, ATLANTIC INTERNATIONAL UNIVERSITY

This is a challenging insight you have brought out prof. However it's true that long range strategicplanning is beginning to loss grip in terms of being above board as numerous decisions(emanating from the long range plans)are being made along the life of stretegic plans. Theincreasing dynamism of business /organisational parameters has totally enhanced the sensitivityof all assumptions we make in drawing up long range plans such that every single shift of anassumption/factor (which may be termed low risk) has increased potential of derailing progress.

In this light, and while i submit that long range strategic planning may still be relevant to somedegree, i feel the time has come for us to modfy the traditional way of dealing with,preparingstrategic plans and managing the plans. We are in an era of moving targets and the institutionsthat move within acceptable speed survive. The frequency of Monitoring and evaluating ofstrategic plans becomes therefore a relevant factor to consider.

UDAY KAGAL PROPRIETOR, INNOVATION SOCIAL CONSULTANTS

Couldn't agree more but I think it is a bit of both. We cannot do planning without strategy, but thestrategy must be shape-shifting in order to constantly adapt to the fast-changing environment.There must be some givens and some not-so-givens and the challenge will be to discover whichare which.

SUBMIT

HARSHA DESAI PROFESSOR OF MANAGEMENT, LOYOLA UNIVERSITY MARYLAND

For exactly the reasons Prof. McGrath states, over the years I have found use of dynamic scenarioplanning in strategic thinking much more useful while also using static analyses of SWOT andProf. Porter's industrial dynamics take (five forces + complementors).

GARY JOHNSON PRESIDENT, GAP SOLUTIONS

I believe a business that truly supports well thought-out strategic planning is being proactivetowards achieving its growth goals and has a competitive advantage over non-strategicbusinesses. To not be proactive is to be reactive. I believe a successful business utilizes bothproactive and reactive planning, however, a business that is continually reactive is onecommonly in crisis management and will accomplish less than a strategic thinking company,and I add, implementer of those strategies. If something has shifted, I believe it is not the needfor strategic planning it is that strategy is now fluid. When change wasn't occurring so rapidly, asit is today, a company could set its goals and rely quite competently on the strategies itdeveloped to achieve those goals; only the tactics to achieve the strategies remained fluid inorder to address changes or shifts impacting the business, i.e., customer need, etc. That's whererea ctiveness applies to a successful business. Today, the strategic goals remain fixed, andstrategy has joined with tactics as being fluid. In order to address rapid change, companies todayare developing a three-year strategic plan and not the more traditional five-year plan. Technologyis here to stay and will continue to tremendously aid businesses in achieving their goals,technology is a means, a strategy, not the end. Competitive advantage and a business withoutstrategy- one that is in constant re-activeness, seem to be an oxymoron; a "living" strategic planwill always help a business be more competitive, and more successful.

BILL SHIRLEY, BT MCC. CEO, IN SEARCH OF EAGLES, INC

From my most current experience, the "sustainable competitive advantage" strategy appears torequire an Agile, Enthusiastically Engaged team. Only when such a team listens to thecustomer's ever-evolving expectations and experiments (successfully) with adaptive changes inthe business model that exceed those expectations does the "transient competitive advantage"become sustainable.

But, as Alvin Toffler pointed out in 1970 (in Future Shock): "the rate of change is accelerating."The evidence is clear: the speed of change has no known terminal velocity! Our human nature,being what it, causes us to create ("reliable") systems to support our sustainable success. Ourtransient success appears to be sustainable once our last period of non-success fades from ourshort-term memory. Paradoxically, that is the moment when our "sustainable success" becomesnon-sustainable or "transient."

The sustainable competitive advantage strategy assumes a finite (zero sum) game marketenvironment while the transient competitive advantage strategy assumes an infinite game marketenvironment. The strategy required to prevail in an infinite game environment is very differentfrom that required to prevail in a finite game environment. We have been encouraging our clientsto think in terms of prospering in an infinite game market for some time.

GEOFF CLARKE NONE, NONE

I write from distant left field- so rule me out from any insight if you like.

However

The problem with strategic planning is the assumption that the future can be forecast andtherefore future action can be planned. That belongs to Soviet style illusions.

What Porter gave/ gives us is a good framework to work out where we are, where our competitorsare, and at least a shot of respective trajectories, hence of what options are available to us.

'No plan survives intact the first contact with the independent will of the enemy'

JOHN ARNOTT CEO, NIMBLE VENTURES INC.

Caveat; I have not read Rita's book, yet. This is a fascinating subject and I shall get her bookasap. But one thing I want to add to Jim's comments is the shift in management style exhibitedby some leaders. One may think that GE would be one of the biggest ships around but Immelthas done what I think is masterful - management in public - he is so well published that nomanager could ever pretend to not understand. Staff, suppliers, competitors, all know what heexpects and unless they simply don't read, he gets the culture distributed. He's turning that

aircraft carrier like a, well not a go-cart, but something far less unwieldy.

JIM BRIGGS PRESIDENT, RANGER MACHINING, LLC

Large companies are victims of being large. They do not readily adopt strategies for becomingmore quick and agile because they lack the quickness and agility to do so. The chicken-and-eggproblem. Also, breaking into smaller, more nimble business units requires people to give uppower. People are typically reluctant to give up power, and can present many sound and sensiblereasons why their business unit should not be broken up. Government is an extreme example ofthis phenomenon.

JANICE MAFFEI PARTNER/OWNER, VISIONFIRST

We see Maslow's observation about the person with a hammer seeing every problem as a nailalive and well in many organizations. There is an illusion of control in the strat planning process- forms and templates, deadlines and reviews. Where are the new ideas, the bold thinking thatwill create the transient advantage? Actually, it is transient - visionary thinkers leave in droves, or"retire" while still on the job. We need to influence leaders to envision longer term possibilitieswhile creating short term experiments - rapidly prototyping their way to today's transientcompetitive advantage.

GERALD NANNINGA PRINCIPAL CONSULTANT, PLANNINGA FROM NANNINGA

My contention is that strategic planning allows a company to act faster, making strategicplanning even more valuable in today's environment. Without strategic planning, a company isleft with two options--reaction or randomness. Reaction is a rarely a path to leadership (as othercontributors have pointed out) and randomness (considering everything and moving in alldirections hoping something will stick) is time consuming and resource wasting.

Strategic planning speeds things up by pre-defining boundaries and pointing towards where acompany should increase its emphasis to build competencies. As a result, a company doingstrategic planning no longer has to re-invent the wheel whenever the market shifts. Time is notlost in starting with a blank whiteboard all the time. The boundaries are set and you quickly getdown to business within them.

In addition, by knowing where a company adds value, you know how you have to play to win. Thisleads to two benefits. First, you can act faster, because you know which way to go in advance(towards your competency edge). Second, you are more likely to succeed, because you areleveraging a business model that has an innate advantage due to the superiority of the businessmodel competencies. Rather than always being in a race with me-too products built byindistinguishable companies, you are building superiority through unique strengths.

The problem is that most of the work done today in the name of "strategic planning" attacks thewrong issues. It looks at financial targets rather than what trade-offs are necessary to build aunique business model that can be applied in multiple directions (depending on market shifts)while providing an edge over the me-too chasers.

Under Steve Jobs, Apple had a well-defined strategy: develop high-end closed systems whichexcelled in elegance, simplicity and coolness. This focus made is easier to know what to focuson and helped Apple to know where to build competencies in order to win (far better thanreaction or randomness).

I speak more about this topic here: http://planninga-from-nanninga.blogspot.com/2013/08/strategic-planning-analogy-509-high.html.

MUNYARADZI MUSHATO CORPORATE TRAINER, THE COTTON COMPANY OF ZIMBABWE

I partly agree and partly disagree with the article. Firstly, perhaps foremost, why deliberatelygoing out to plan to build a short-lived competitive advantage? There is no everlastingcompetititve advantage and sustainability of any competitive advantage is relative. The idea ofstrategic planning is therefore to build a competitive advantage that has a longer working life, i.ethat which will take longer to be imitated by rivals, for examples creating new demand in newmarkets and building unique capabilities to satisfy that demand. This is what W. Chan Kim andRen?e Mauborgne called the Blue Ocean Strategy. So the longer it takes before a competitiveadvantage is erased , the stronger that competitive strategy is. I do not see the logic against thatway of thinking. Secondly, I do agree that change is now taking place at a much faster rate thanbefore, especially technology-induced change. What that means is organisations need t o buildand sustain change agility capabilities that will allow them to be more adaptable to theirenvironment by moving with or ahead of change. that is the only way to build sustainablecompetitive advantage. Infact ,the need for a sustainable strategy is actually higher in a volatilemarket space.

STEVE FLICK Q9C QUALITY CONSULTING

I have not read the book so I don't know if the author has dealt with the subject of "risk appetite".Businesses are generally begun by individuals who understand the risks involved in getting theirideas to fruition; they are risk takers but are not reckless. As their businesses become successfuland continue to grow, however, the company's risk appetite decreases. They become morecautious and conservative, wanting to hold onto (or nurture) what they have. I believe this is anatural course of events.

As businesses become risk averse, their desire to maintain the status quo increases. Changebecomes increasingly difficult, which affects strategic planning. Thus, competitive advantagesare lost.

If we could all stay small and nimble...

DANIEL T C LEE DIRECTOR, AVONDALE GRAMMAR SCHOOL

Strategic planning and focus on core competencies may lead to competitive disadvantage?Traditional or not, strategic planning has never restricted new innovation. In fact SWOT analysis /Cost Benefits Analysis and Risk analysis is constantly done in both long term and short termdecision making. The issue is the extent and depth of the anlaysis and not if these lead to acompetitive disadvantage. Considerations must include the dynamic environment, theexpectations and timing of changes. There must be a certain level of confidence of survival,whether at the individual level or the organizational level, before innovators embark on high riskventures and accept anticipated failures. Many companies as well as VCs have a diversifiedportfolio, and create successful cash cows before putting their share of funding into 'uncharteredwaters.' These clearly indicate the need for long term strategic planning to achieve sustainablecompetitive advantage in the bigger picture. On the micro perspective however, it is necessary toprovide freedom for innovation within a defned framework in order not to stifle creativity and tobe able to react quickly to changes.