No Silver Bullet for Stragetic Management

Article: The halo effect, and other managerial delusions
Author / Publisher: McKinsey Quaterly
URL: http://www.mckinseyquarterly.com/article_page.aspx?ar=1928&L2=21&L3=37&srid=17&gp=0


There are plenty of books that promises to provide "The Solution" to strategic management problems. Alas, the data which "proves" the theory are flawed, and greatly skewed by the Halo effect.

What's the Halo effect? During the dot net boom in the late 90's, Cisco was praised for its briliant strategy, spate of successful acquisition and customer focus. With the resulting dot net bust, Cisco was critizied with flawed strategy and poor acquisition. In reality, not much change within Cisco.

Another mantra frequently used is to reach an absolute target (x% of return in 5 years, y% defect, z% capital growth, etc). In reality, we live in a constantly changing world. What would be ideal today, is barely acceptable in 3 years' time. It is important to be not caught up with some target set in stone, without taking into account the changing circumstances.

One of the most illuminating point of the article is the fact that there is no such thing as lasting success. Any lasting success is a statistical anomaly, and in reality it is a string of multiple, short-term successes.

Pursuing a dream of enduring greatness may divert attention from the need to win more imemdiate battles.

What makes strategic management so challenging is because there is no guaranteed keys to success. Otherwise, strategic decision making could just be simplified to a chore of ticking boxes and following simple rules.

We have to accept the uncertainty in the business environment:

• Strategic choice is making decision in the face of uncertainty
• Its up to customers to accept / reject a new product/service. Even if that is predictable, competitors reaction is difficult to anticipate
• Technological change could bring about unexpected results

Wise managers should approach problems as interlocking probabilities. The aim is to increase the odd of success, rather than looking for a 100% result. There are 2 types of forces:

• External: industry, customer trends, competitors' reaction
• Internal: capabilities, resources, risk preferences

Robert E. Rubin: “Once you’ve internalized the concept that you can’t prove anything in absolute terms, life becomes all the more about odds, chances, and trade-offs. In a world without provable truths, the only way to refine the probabilities that remain is through greater knowledge and understanding.”

"Good decisions don’t always lead to favorable outcomes, and unfavorable outcomes are not always the result of mistakes." It is only through in-depth analysis that you can find out the true worth of an action.