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Competing on the edge

by Shona L. Brown and Kathleen M. Eisenhardt, Harvard Business School Press, 1998.

(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.

We aim to give enough information to enable readers to decide whether a book fits their particular concerns and, if so, to buy it. There is no substitute for reading the whole book and our reviews are no replacement for this. They can give only a broad indication of the value of a book and inevitably miss much of its richness and depth of argument. Nevertheless, we aim to open a window on to some of the benefits awaiting readers of management literature.)

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:

1. The edge of chaos is ‘a natural state between order and chaos, a compromise between structure and surprise.’ It means being only partially structured. Change occurs when strategies and their related organisations are sufficiently rigid so that change can be organised to happen but not so rigid that it cannot occur. Organisations never quite settle into a stable equilibrium but never fall apart, either. This is where systems of all types biological, physical, economic, and social, are at their most vibrant, surprising and flexible.
2. The edge of time. Successful change requires thinking simultaneously about multiple time horizons. It involves relying partially on past experience, while staying focused on current execution, and still looking ahead to the future. It is about focusing on today but never losing sight of the past or the future. The critical management issue is how to manage all the timeframes simultaneously without being trapped in any one.
3. Time pacing means that change is triggered by the passage of time, rather than by the occurrence of events. For example, launching a new product or service every six months, rather than whenever a competitive response is needed; or entering a new market every third quarter, rather than whenever a promising opportunity appears. It is about creating an internal rhythm that gives the momentum for change. The key management issues are picking the right rhythm and choreographing transitions such as from product to product or market to market.

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:

Strategy

1. Advantage is temporary: Treat any strategy as temporary. Focus on continuously generating new sources of advantage.
2. Strategy is diverse, emergent, and complicated: Make a variety of moves, observe what happens, and follow through with the ones that are successful.
3. Reinvention is the goal: Look for opportunities to reinvent the business and then let profits follow.

Organisation

4. Live in the present: The present is the most important time frame. Use just enough structure to keep things from flying apart, keep businesses poised for change, and keep managers aware of new opportunities.
5. Stretch out the past: Managers who compete on the edge learn more from the past than their counterparts who don't compete on the edge. Wise use of the past diminishes risk and frees resources to focus on new ideas.
6. Reach into the future: Managers who compete on the edge reach further into the future and manage in a longer time horizon than most others. They launch more experimental products and services, create more strategic alliances with a focus on nascent markets and technologies, and employ more futurists than other firms. (Stan Davis, author of Lessons from the Future would be happy about this assertion.)
7. Time pace change: Pace as distinct from speed is a critical strategic weapon. Set a rhythm and tempo around the number of new products or services launched, brands refreshed, or new acquisitions made each year.

Leadership

8. Grow the strategy: Managers who compete on the edge ‘grow their businesses like prairies, rather than assemble them like toasters’. They pay attention to the order in which strategy is grown, beginning with current businesses, then working to incorporate the past and linking future opportunities, and concluding with time pacing. These managers never start with the future when growing a business: they start with the basics of today.
9. Drive strategy from the business level: In high-velocity markets, strategy cannot be driven top down. The required mindset is business-level driven strategy and accountability. Success comes from skilled, fast, and agile moves at the business level.
10. Repatch businesses to markets and articulate the whole: Continually re-examine the make-up of individual businesses and their matches with markets. Continuously realign businesses with emerging opportunities.

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:

• Transforming the current business is the first priority.
• Move to the edge of chaos - test your organisation to see where it is overstructured and understructured.
• Think small - pick targeted areas to launch the transformation and use them as exemplars or platforms to expand.
• As you build your new improvisational skills, reproduce them in closely related strategic opportunities.

Then, once your current strategy is under control, think about growth:

• Move to the edge of time - assess whether your probes into the future (such as strategic alliances) are giving you a window into the critical aspects of your future. If not, prune them and try others.
• Examine your product or service development portfolio - at least 15 per cent of your efforts should be experimental.
• Add regular meetings focused on the future - try scenario planning, employ futurists. (More business for Stan Davis!)
• Don’t forget your past - take stock of your capabilities and see how to exploit them as a source of regeneration.
• Use your successes in new businesses to regenerate your established businesses.

And when you are sure your operations in each time frame are effective:

• Develop time pacing - start at low levels of the organisation where transitions are more frequent and move up.
• Watch for missing links - don’t conceal failures, work out what has gone wrong and why and use the insights.

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.

Highly recommended.

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