by Shona L. Brown and Kathleen M. Eisenhardt, Harvard Business School Press, 1998.
Strategy is seen as “structured chaos”, striking a balance between anarchy and order. Inspiration is sought from complexity and evolutionary theories. This doesn’t mean “massive gut wrenching makeover”; change can be on-going, routine and endemic to the corporate culture.
(Reviewed by Kevin Barham in August 2001)
(These book reviews offer a commentary on some aspects of the contribution the authors are making to management thinking. Neither Ashridge nor the reviewers necessarily agree with the authors’ views and the authors of the books are not responsible for any errors that may have crept in.
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Is Bill Gates the quintessential corporate strategist - controlled, cerebral and well planned? Or, is Microsoft just good at coping with fast-paced and unrelenting change by reconfiguring its strategy as it goes along? Very much the latter, suggest Shona Brown and Kathleen Eisenhardt. Microsoft’s internet strategy, for example, is unpredictable, uncontrolled and inefficient - but it works, they say. This is because its approach to strategy is also proactive, continuous and diverse. Microsoft in effect ‘competes on the edge’ by creating a relentless flow of competitive advantages that it crafts together to form a semicoherent strategic direction.
Brown and Eisenhardt’s book first came out three years ago. It is a valuable work to revisit, however, as it offers important insights into managing the challenges of the future, as vividly described in the two other books reviewed on the Virtual LRC - Evolve and Lessons from the Future. Brown and Eisenhardt’s depiction of ‘strategy as structured chaos’ is a clever working through of exactly the kind of business paradox (‘the oxymoron that isn’t’) pointed to by Stan Davis in the latter book.
According to Brown and Eisenhardt, traditional approaches to business strategy are no longer adequate for the volatile conditions facing most industries. They contend that an entirely new paradigm called ‘competing on the edge’ is needed. This means charting a course ‘along the edge of chaos’, where a delicate compromise is struck between anarchy and order. It requires ‘manoeuvring on the edge of time’, where current business is the primary focus but actions are shaped by past legacies and future opportunities. The best firms, say Brown and Eisenhardt, employ competing-on-the-edge strategy to change routinely, relentlessly, and rhythmically over time.
Brown, a McKinsey consultant, and Eisenhardt, a professor at Stanford University, say traditional approaches to strategy overemphasise the degree to which it is possible to predict which industries, competences, or strategic positions will be viable and for how long. Such approaches also underemphasise the challenge of creating and executing the chosen strategy. Competing on the edge, on the other hand, defines strategy as the creation of a relentless flow of competitive advantages that, taken together, form a semicoherent strategic direction. The key driver of superior performance is the ability to change and success is measured by the ability to survive, to change, and ultimately to reinvent the firm constantly over time.
Brown and Eisenhardt’s approach is original and their ideas are striking because they are the result of combining in-company research with some of the latest scientific thinking about how living things grow, adapt and change. For their research, they draw on six pairs of businesses in the computer industry, which they believe to be the most visible industry in which many managers have learned to succeed in the face of relentless change. One member of the pair is a dominant player within its segment of the industry by measures that include profitability, growth, market share, and general industry reputation. That business is matched with a very good business but one that is not a segment leader. The dominant businesses showed an average revenue growth of approximately 20 percent per year during the 1990s. In contrast, the very good businesses paired with the dominant ones showed an average growth of only five percent over the same period.
The authors also seek inspiration in the changes that have been occurring in scientific understanding of how organisations and systems in general change. The new thinking is that change is the marriage of two processes. One emphasises the emergence of surprising and sometimes even abrupt change from partially linked systems called complex adaptive systems. This is explored in complexity theory. The other describes the process of gradual change across time through variation, selection, and retention. This is evolutionary theory.
Complexity theory is interested in how order springs from chaos. It argues that adaptation is most effective in systems that are only partially connected. Too much structure creates gridlock, while too little structure creates chaos. Consequently, the key is to stay ‘poised on the edge of chaos’. Complexity theory focuses thinking on the interrelationships among different parts of an organisation and on the trade-off of less control for greater adaptation.
Evolutionary theory looks at how systems evolve through natural selection, acting on inherited, genetic variation through successive generations over time. It suggests that some randomness and inefficiency in the process enhances variation and makes evolution more effective. Moreover, systems evolve most effectively by gradually shedding what was useful in the past and adopting what will be useful in the future. The key, therefore, is to ‘remain on the edge of time’ so that the past and future are connected. Evolutionary theory stretches managerial thinking across a longer time frame that includes past and future, and focuses thinking on randomness.
Brown and Eisenhardt argue that firms in rapidly changing industries are superior performers when they combine these two change processes and continuously reinvent themselves. Complexity theory describes the quicker change process that happens as managers adapt their business to current conditions. Evolutionary theory describes a slower and more gradual change process that occurs over time.
The authors say that competing on the edge is an unpredictable, controllable, and even inefficient strategy but one that nonetheless works. Superior performers who compete on the edge not only react effectively to change and try to anticipate change. They consistently lead change in their industries and set the rhythm and pace of change in those industries. In effect, they become the environment for their competitors.
As described by Brown and Eisenhardt, a semicoherent strategic direction is:
Unpredictable: Make some moves, observe what happens and continue with the ones that work.
Uncontrolled: Position strategy-making at the business unit level, don’t try to control it from the centre.
Inefficient: Be prepared to stumble into the wrong markets, make mistakes and falling into the right ones. Allow duplication, misfit, error and even some randomness.
Proactive: It is about being early, trying to anticipate and, where possible, to lead change.
Continuous: Aim for a rhythm of moves over time, not a set of disjointed actions. It calls for repeated, relentless change that becomes endemic to the firm.
Diverse: Make a variety of moves with varying scale and risk. Some will be brilliant, most will be good, and a few will be failures.
At the heart of competing on the edge are three core concepts:
The book covers a lot of ground but the authors boil it down into ten rules for competing on the edge that cover strategy, organisation and leadership:
The authors supplement the rules with a checklist that provides guidance on how to develop an ability to compete on the edge. This starts with current operations:
Then, once your current strategy is under control, think about growth:
And when you are sure your operations in each time frame are effective:
This is a book on which it is really worth spending some time working through the concepts and their implications for your business. Brown and Eisenhardt illustrate their ideas with case studies of the companies that took part in their research (using pseudonyms) so there are plenty of real world lessons. They also enrich the book with some unusual examples - such as the use of magic by nomads in caribou hunting (to show how managers operating on the edge of time can use the past effectively).
One of the most compelling insights offered by the authors is the contrast between the constant change implied by competing on the edge and traditional thinking about how change occurs. Competing on the edge is not about ‘massive gut-wrenching corporate makeovers’. A striking characteristic of many successful companies is the absence of massive transformation. In such firms, change is ongoing, routine, relentless and endemic to the corporate culture.