A dynamic view over strategy

Professor Richard Rumelt, a professor of strategy at UCLA’s Anderson School of Management, has achieved a number of first ascents. Rumelt challenged the dominant thinking with his controversial 1991 paper, “How much does industry matter?” His study, published in the Strategic Management Journal, showed that neither industries nor corporate ownership can explain the lion’s share of the differences in profitability among business units. Being in the right industry does matter, but being good at what you do matters a lot more, no matter what industry you’re in. This study was one of the first entries in what has since become a large body of academic literature on the resource-based view of strategy.

Rumelt is holding a pionner view over strategy. He thinks the annual strategic planning process in most of the companies is not strategy at all. It should be re-named as long-term resourc plans because the process is concerning property acquisition, construction, training, et cetera. This plan coordinates the deployment of resources—but it’s not strategy. These resource budgets simply cannot deliver what senior managers want: a pathway to substantially higher performanc.

In Rumelt's eyes, strategy is more about taking positions in front of changes. Senior management must make speculative judgements in the advent of changes. It is never easy to predict clearly which positions will pay off? Strategic thinking is essentially a substitute for having clear connections between the positions the company takes and their economic outcome.

He further states that most of the strategy concepts in use today are static. They explain the stability and sustainability of competitive advantages. Strategy concepts like core competencies, experience curves, market share, entry barriers, scale, corporate culture, and even the idea of “superior resources” are essentially static, but why a particular position is defensiblbe is not sufficiently addressed.

In the business nowadays, unlike geology, change happens in years rather than millennia. In the modern business world, there are earthquakes all the time that quickly take the low ground and raise it high and, at the same time, submerge some mountain peaks below water.

So to put strategy from a dynamics perspective, we should study how those changes would shift each dimension of an industry. Would the industry become more concentrated or less? More integrated or less? Would there be more product differentiation or less? More segmentation or less? Given consumer desires and available technologies, how should the industry or business look in, say, ten years? Where are the economic forces trying to take you? Should your strategy ride those forces or fight them?

In order to answer how the companies take the positions, Rumelt uses the concept of predatory leap. When the window of oppotunies is opened, the market leader was the company that was the first to successfully jump through that window. Not exactly the first mover but the first to get it right.

In reflection to Rumelt's theory, I agree with him that in a dynamic business world, we should also conceive strategy in a more motional manner. To quote him " Changes, however, don’t come along in nice annual packages, so the need for strategy work is episodic, not necessarily annual. " The episodic moment Prof. Rumelt refers to is the timing when the revolution in the industry is going to happen. Of course, if a CEO of the company has enough sensativity, he should immediately take the hint and make his bets. In Remelt's words, to make a predatory leap. However, we can not deny that although the cycle time of indursy revolution is significantly shortened, it still takes years to arrive. Companys still to figue out what they should do in a relatively static period of time. Therefore, the static strategy is not as facinating as a dynamic one, but it is still necessary.

According to Rumelt's definition, strategy is a pathway to substantially higher performanc. The performance can be acheived by jump across a window (if the other side of the window is not a cliff), or can be realized by a smart resource planning which allocate the right amount of the resource at the right place and at the right time.

To wrap up, strategy is very complicate stuff. There are so many dimenstion interwined and most of the time, we have judge it by result instead of process. A successful strategy needs business acumen, but it also needs a load of luck.