the natural laws of strategy by gord hotchkiss
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THE NATURAL LAWS OF STRATEGYGORD HOTCHKISS
“Like it or not, History is on our side. We will bury you!”
Nikita Khrushchev -‐ 1956
NIKITA KHRUSHCHEV’S PROMISE
“For Khrushchev, the new methods of management are an essenOal means for achieving Stalin's goal, that of "overtaking and surpassing the advanced capitalist countries." Today only one of them-‐-‐the United States-‐-‐remains to be overtaken”
-‐ Phillip E. Mosely, Foreign Affairs,
July 1958
NIKITA KHRUSHCHEV’S PROMISE
“Like it or not, History is on our side. We will bury you!”
Nikita Khrushchev -‐ 1956
“For Khrushchev, the new methods of management are an essenOal means for achieving Stalin's goal, that of "overtaking and surpassing the advanced capitalist countries." Today only one of them-‐-‐the United States-‐-‐remains to be overtaken”
-‐ Phillip E. Mosely, Foreign Affairs,
July 1958
0
22.5
45
67.5
90
1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964
USSR Growth US Growth
US vs USSR ECONOMIC GROWTH
ESTIMATED CUMULATIVE PERCENTAGE GROWTH IN GDP PER CAPITA
“SHOE” INCIDENT
“BURY YOU”
0
300
600
900
1200
1951 1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989
USSR Growth US Growth
US vs USSR ECONOMIC GROWTH
ESTIMATED CUMULATIVE PERCENTAGE GROWTH IN GDP PER CAPITA
INTERNAL POST WAR GROWTH EXTERNAL TRADE GROWTH
KOSYGIN REFORM
PERESTROIKA REFORM
“SHOE” INCIDENTBURY YOU
CENTRALIZED PLANNING
“For every enterprise, planning ministries defined the mix of economic inputs (e.g., labor and raw materials), a schedule for compleOon, all wholesale prices and almost
all retail prices.” Wikipedia
CENTRALIZED PLANNING
0
22.5
45
67.5
90
1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964
USSR Growth US Growth
CONTROLLED AND PREDICTABLE
UNCONTROLLED AND UNPREDICTABLE
THE POTENTIAL GAP
THE POTENTIAL GAP
ORGANIC AND UNPREDICTABLE CONTROLLED AND PREDICTABLE
• NATURALLY COMPLEX • DYNAMIC • NETWORKED • EMERGENT • EXTERNAL VARIABLES • DISTRIBUTED • NATURAL RHYTHMS • RESPONSIVE • ADAPTIVE • ABSORBS “BLACK SWANS” • EFFECTIVE BUT MAY NOT EFFICIENT
• COMPLICATED PLANS • STATIC • HIERARCHIES • PLANNED • INTERNAL CONTROLS • CENTRALIZED • STRAIGHT LINE STRATEGIES • DRIVEN BY LONG TERM PLANS • RESISTANT • VULNERABLE TO “BLACK SWANS” • EFFICIENT BUT MAY NOT EFFECTIVE
THE NATURAL LAWS OF STRATEGY
THE NATURAL LAWS OF STRATEGY
THE NATURAL LAWS OF STRATEGY
INVISIBLE HAND VISIBLE HAND
1100
Trades, Guilds, Market Economy
emerge
Adam Smith coins “Invisible Hand”
1776 1820
Railways introduce Modern Corp Structure
1977
Alfred Chandler coins “Visible Hand”
2015
THE NATURAL LAWS OF STRATEGY
• PHYSICS • CHEMISTRY • GEOLOGY • BIOLOGY • PHYSIOLOGY • PSYCHOLOGY • SOCIOLOGY
“You can’t ignore nature forever…”
“You can’t ignore nature forever…”
THE WAVE
60 YEARS
10 20 30 40 50 60 70 80 90 100 120 130 140 150 160 170 180
1905 1965
JOSEPH SCHUMPETER
“The opening up of new markets, foreign or domesOc, and the organizaOonal development from the cram shop and factory…illustrate the process of industrial mutaOon that incessantly revoluOonizes the economic structure from within, incessantly destroying the old one, incessantly creaOng a new one. This process of CreaOve DestrucOon is the essenOal fact about capitalism.”
CREATIVE DESTRUCTION
NIKOLAI KONDRATIEV
Decline of Old Regime
InnovaOon based on current
inadequacies
Building FoundaOons of New Regime
AdopOon of New InnovaOon
Rapid Growth of New Regime
Entering Period of Stasis
CELEBRATE
PANIC
Building FoundaOons of New Regime
AdopOon of New InnovaOon
Rapid Growth of New Regime
Entering Period of Stasis
10 20 30 40 50 60 70 80 90 100 120 130 140 150 160 170 180
15 YEARS
10 20 30 40 50 60 70 80 90 100 120 130 140 150 160 170 180
STABLE ENVIRONMENT
VOLATILE ENVIRONMENT
VOLATILE ENVIRONMENT
PUNCTUATED EQUILIBRIUM
EVOLU
TION/INNOVA
TION
10 20 30 40 50 60 70 80 90 100 120 130 140 150 160 170 180
STABLE ENVIRONMENTVOLATILE ENVIRONMENT
PUNCTUATED EQUILIBRIUM
STABLE ENVIRONMENT
STABLE ENVIRONMENT
VOLATILE ENVIRONMENT
-+
THE PROPERTIES OF WAVES
CONTROL TRANSITIONS
THE PROPERTIES OF WAVES
THE PROPERTIES OF WAVES
THE PROPERTIES OF WAVES
THE NATURAL LAWS OF STRATEGY
• EMBRACE WAVES
INNOVATION & NETWORKS
COMPLICATION
COMPLEXITY
COMPLEXITY
COMPLEXITY
INNOVATION & NETWORKS
SOUTH KOREA SWEDEN US UK SINGAPORE GERMANY JAPAN NETHERLANDS CANADA IRELAND
MALAYSIA RUSSIA POLAND TURKEY MEXICO
SOUTH AFRICA BRAZIL
ARGENTINA INDIA
INDONESIA
MORE INNOVATIVE LESS INNOVATIVE
0
0.275
0.55
0.825
1.1
0 7.5 15 22.5 30
InnovaOon GDP
INNOVATION & NETWORKS
SOUTH KOREA
INDONESIA
0
0.275
0.55
0.825
1.1
0 7.5 15 22.5 30
InnovaOon GDP Trust
SOUTH KOREA
INDONESIA
INNOVATION & NETWORKS
0
0.3
0.6
0.9
1.2
0 7.5 15 22.5 30
InnovaOon GDP Aethism
SOUTH KOREA
INDONESIA
INNOVATION & NETWORKS
0
0.3
0.6
0.9
1.2
0 7.5 15 22.5 30
InnovaOon GDP Trust Aethism
SOUTH KOREA
INDONESIA
INNOVATION & NETWORKS
STRONG TIES
WEAK TIES
PRONE TO “GROUP THINK” AND INFORMATION CASCADES
ENGAGEMENENGAGEMENT
EXPLORATION
THE WAVE OF ENGAGEMENT AND EXPLORATION
0
0.275
0.55
0.825
1.1
0 7.5 15 22.5 30
InnovaOon GDP Trust
SOUTH KOREA
INDONESIA
INNOVATION & NETWORKS
REDEFINING TRUST
PROMOTE FROM WITHIN/EMBEDDED LEADERSHIP
THE NATURAL LAWS OF STRATEGY
• EMBRACE WAVES • REPLACE HIERARCHIES
WITH NETWORKS • BUILD INTERFACES FOR
EXPLORATION • BUILD INTERFACE
TOLERANCE & TRUST • ENCOURAGE HEALTHY SKEPTICISM
HOW DO COMPANIES NAVIGATE UNPREDICTABLE ENVIRONMENTS?
SENSE MAKING
SENSE MAKING
DATA: RECOGNIZE DATA FROM WORLD
FRAME: DEFINES WHAT
COUNTS AS DATA, ORGANIZES
QUESTION A FRAME: DETECT INCONSISTENCIES
TRACK ANOMALIES JUDGE DATA QUALITY
ELABORATE A FRAME: ADD AND FILL SLOTS DISCOVER DATA
INFER NEW RELATIONSHIPS DISCARD DATA
REFRAME: COMPARE FRAMES SEEK NEW FRAME
ELABORATION CYCLE REFRAMING CYCLE
CONSCIOUS
SUBCONSCIOUS
PERSONAL SENSEMAKING
INSTINCT REFLEX
BELIEFS & HABITS
PATTERN RECOGNITION
EXECUTIVE
THE WORLD
UNPREDICTABLEPREDICTABLE
CONSCIOUS
SUBCONSCIOUS
CORPORATE SENSEMAKING
INSTINCT REFLEX
BELIEFS & HABITS
PATTERN RECOGNITION
EXECUTIVE
THE WORLD
UNPREDICTABLEPREDICTABLE
Find a new frame Change strategy
Update exisOng frame Modify strategy
Set Values Define Mission
Communicate Context
Create Policies Establish Guidelines
Set PrioriOes
PRODUCT DESIGN
SALES
CUSTOMER SERVICE
MARKETING
EXECUTIVE CUSTOMER INSIGHT
FINANCIAL
HUMAN RESOURCES
TECHNOLOGY
THE NEW CORPORATE STRUCTURE
PRODUCT DESIGN
SALES
CUSTOMER SERVICE
MARKETING
EXECUTIVE CUSTOMER INSIGHT
FINANCIAL
HUMAN RESOURCES
TECHNOLOGY
THE FRAME
THE NEW CORPORATE STRUCTURE
THE NATURAL LAWS OF STRATEGY
• EMBRACE WAVES • REPLACE HIERARCHIES
WITH NETWORKS • BUILD INTERFACES FOR
EXPLORATION • BUILD INTERFACE
TOLERANCE & TRUST • ENCOURAGE HEALTHY SKEPTICISM • CREATE A “SENSE MAKING” ORGANIZATION • REDEFINE ROLES TO ENABLE THIS • SET A CRYSTAL CLEAR CONTEXT -‐ FRAME -‐ FOR THE ORGANIZATION
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