Strategy as Strategic Decision Making

Many executives realize that to prosper in the coming decade, they need to turn to the fundamental issue of strategy. What is strategy? To use a simple yet powerful definition from The Economist, strategy answers two basic questions: “Where do you want to go?” and “How do you want to get there?”1

Traditional approaches to strategy focus on the first question. They involve selecting an attractive market, choosing a defensible strategic position, or building core competencies. Only later, if at all, do executives address the second question. Yet in today’s high-velocity, hotly competitive markets, these approaches are incomplete. They overemphasize executives’ ability to analyze and predict which industries, competencies, or strategic positions will be viable and for how long, and they underemphasize the challenge of actually creating effective strategies.

Many managers of successful corporations have adopted a different perspective on strategy that Shona Brown and I call “competing on the edge.”2 At the heart of this approach lies the recognition that strategy combines the questions of “where” and “how” to create a continuing flow of temporary and shifting competitive advantages. Executives from a variety of firms echo this perspective. John Browne, CEO of British Petroleum, stated, “No advantage and no success is ever permanent. The winners are those who keep moving.”3 Michael Dell, CEO of Dell, commented, “The only constant in our business is that everything is changing. We have to be ahead of the game.”4 But creating a series of shifting advantages is challenging. It requires effective strategic decision making at several levels: at the unit level, to improvise business strategy; at the multibusiness level, to create collective strategy and cross-business synergies; and at the corporate level, to articulate major inflection points in strategic direction.

This article describes strategy as strategic decision making, especially in rapidly changing markets. Its underlying assumption is that “bet the company” decisions —those that change the firm’s direction and generate new competitive advantages — arise much more often in these markets. Therefore, the ability to make fast, widely supported, and high-quality strategic decisions on a frequent basis is the cornerstone of effective strategy. To use the language of contemporary strategy thinking, strategic decision making is the fundamental dynamic capability in excellent firms.

These ideas come from more than a decade of research on strategy in high-velocity markets. During one phase of that research, Jay Bourgeois and I examined top-management teams and their decisions in twelve entrepreneurial firms in Silicon Valley. Using questionnaires and open-ended interview questions, we studied decision speed, conflict over goals and key decision areas, executive power, and politics. In addition, we traced the multiple strategic decisions and firm and decision performance. During a second phase of research, Shona Brown and I studied six matched pairs of European, Asian, and North American multi-business firms (six dominant and six modestly successful ones) in the broader context of strategy. We gathered data on strategic decision making and other critical processes at multiple levels within these more complex firms.

In both studies, clear differences stood out between the strategic decision-making processes in the more and less effective firms. Strikingly, these differences counter commonly held beliefs that conflict slows down choice, politicking is typical, and fast decisions are autocratic. In other words, these findings challenge the assumption of trade-offs among speed, quality, and support. Instead, the most effective strategic decision makers made choices that were fast, high quality, and widely supported. How did they do it? Four approaches emerged from this research and my other work with executives. Effective decision makers create strategy by:

• Building collective intuition that enhances the ability of a top-management team to see threats and opportunities sooner and more accurately.
• Stimulating quick conflict to improve the quality of strategic thinking without sacrificing significant time.
• Maintaining a disciplined pace that drives the decision process to a timely conclusion.
• Defusing political behavior that creates unproductive conflict and wastes time.

Build Collective Intuition

One myth of strategic decision making in high-velocity markets is that there is no time for formal meetings and no place for the careful consideration of extensive information. Executives, the thinking goes, should consider limited, decision-specific data, concentrate on one or two alternatives, and make decisions on the fly.

Effective strategic decision makers do not follow that approach. They use as much as or more information than ineffective executives, and they are far more likely to hold regularly scheduled, “don’t miss” meetings. They rely on extensive, real-time information about internal and external operations, which they discuss in intensive meetings. They avoid both accounting-based information because it tends to lag behind the realities of the business and predictions of the future because these are likely to be wrong. From extensive, real-time information, these executives build a collective intuition that allows them to move quickly and accurately as opportunities arise.

A good example is Mercury (all company names in the study are pseudonyms), a highly successful computer venture whose management team is known for its ability to reposition the firm adroitly as opportunities shift. How do they do it? These managers claim to “measure everything.” They examine an array of key operating performance metrics that they collectively track monthly, weekly, and sometimes daily: inventory speed, multiple cash-flow measures, average selling price of products, performance against sales goals, manufacturing yields, customer-acquisition costs, and gross margins by product and geographic region. They prefer operating information to more refined, accounting-based numbers. They also pay attention to innovation-related metrics such as sales from new products; time-related metrics such as trends in average sales size per transaction; rates such as number of new product introductions per quarter; and durations such as the time it takes to launch a product globally.

In addition to internal operations information, the managers at Mercury track external information: new product moves by competitors, competition at key accounts, technical developments within the industry, and industry “gossip.” Mercury’s top-management team members play key roles in gathering and reporting these data. Each has areas of information for which he or she is responsible. For example, the vice president of marketing tracks product introductions and exits by the competition. The vice president of R&D reports the latest information on the “technical pulse” of the industry.

Sharing information at “must attend” meetings is an essential part of building collective intuition. The interplay of ideas during these meetings enhances managers’ understanding of the data. At Saturn, a global leader in multiple technology-based businesses, the managers of each major business meet every four weeks in a day-long meeting to review the operating basics in their businesses and the state of the industry. Travel is frequent and necessary, but managers do not miss this meeting. As at Mercury, the emphasis is on real-time information, internal and external. In addition, each meeting covers one or two critical strategic issues facing either an individual business or the group of businesses as a whole. The result is a forum for signaling collaborative opportunities across businesses and for shaping the collective strategy.

In contrast, less successful top-management teams rarely meet with their colleagues in a group. Meetings are infrequent or skipped because of travel commitments. These executives typically make fewer and larger strategic choices. When they do turn their attention to important decisions, they rely on market analyses and future trend projections that are idiosyncratic to the particular decision. The result is groups of strangers who have difficulty engaging with one another productively. While they may each be knowledgeable in their own areas of responsibility, they do not develop collective intuition.

For example, at Aspen, a mediocre computer firm, the managers say they communicate frequently with the CEO but not with each other. One executive sketched herself as an “intelligent observer,” detached from her colleagues. Another confided, “I don’t really know the rest of the team.” In one decision that involved a reconfiguration of the product mix in several manufacturing plants, the senior executives delegated the analysis to staff and did not return to the topic for four months. During the interim, the staff painstakingly assembled plant performance metrics that were routine at the more successful firms. The executive team then commissioned more analyses while they familiarized themselves with the issues.

Why do real-time information and “must attend” meetings lead to more effective strategic decision making? Intense interaction creates teams of managers who know each other well. Familiarity and friendship make frank conversation easier because people are less constrained by politeness and more willing to express diverse views. The strategic decision process then moves more quickly and benefits from high-quality in-formation. For example, one manager at Mercury described the interactions as “open and direct.” Another explained more graphically, “We get it out on the table and yell about it.”

In addition, with intense interaction, managers naturally organize antipodal team-member roles, such as short-term versus long-term or status quo versus change.5 At Mercury, for example, the vice president of marketing was seen as “constantly thinking about the future” whereas the vice president of engineering was considered to be the keeper of the status quo. Describing the interplay of their relationship, the engineering vice president said, “I depend on her to watch out for tomorrow — I look out for today.” A range of perspectives improves decision quality by ensuring that managers consider different sides of the issue.

Most important, when intense interaction focuses on the operating metrics of today’s businesses, a deep intuition, or “gut feeling,” is created, giving managers a superior grasp of changing competitive dynamics. Artificial intelligence research on championship chess players indicates how this intuition is formed. These players, for example, develop their so-called intuition through experience. Through frequent play, they gain the ability to recognize and process information in patterns or blocks that form the basis of intuition. This patterned processing (what we term “intuition”) is faster and more accurate than processing single pieces of information. Consistent with this research, many effective decision makers were described by their colleagues as having “an immense instinctive feel,” “a high quality of understanding,” and “an intuitive sense of the business.” This intuition gives managers a head start in recognizing and understanding strategic issues.

Stimulate Quick Conflict

In high-velocity markets, many executives are tempted to avoid conflict. They assume that conflict will bog down the decision-making process in endless debate and degenerate into personal attacks. They seek to move quickly toward a few alternatives, analyze the best ones, and make a quick choice that beats the competition to the punch.

Reality is different. In dynamic markets, conflict is a natural feature of high-stakes decision making because reasonable managers will often diverge in their views on how the marketplace will unfold. Furthermore, as research demonstrates, conflict stimulates innovative thinking, creates a fuller understanding of options, and improves decision effectiveness. Without conflict, decision makers commonly miss opportunities to question assumptions and overlook key elements of the decision. Given the value of conflict, effective strategic decision makers in rapidly changing markets not only tolerate conflict, they accelerate it.

One way that executives accelerate conflict is by assembling executive teams that are diverse in age, gender, functional background, and corporate experience. At Venus, a high-growth venture in Silicon Valley, the executive team ranges in age from late twenties to mid-fifties. The group includes several Europeans and a woman. Two members hold PhDs in electrical engineering and computer science, respectively. The president has an economics degree, an MBA, and manufacturing experience. The vice president of engineering came from a competitor, while the senior sales executive is a well-traveled industry veteran who had been at a number of firms before settling at Venus several years ago.

Like their counterparts at other successful firms, these executives say that they argue much of the time. The vice president of finance stated, “We all have different opinions.” Another executive observed, “The group is very vocal. They all bring their own ideas.” Particularly striking are the differences in perspectives across the age groups. The older executives usually rely on their expertise from the industry and from other companies to understand strategic choices. They have strong industry connections that pave the way for valuable collaborations with other firms. The younger executives bring in fresh ideas about how to compete and how to exploit the latest technology.

An alliance decision served to demonstrate the difference in outlook. Several of the experienced managers had been involved with both successful and unsuccessful alliances. They described an alliance as a “marriage between equals.” The younger managers framed alliances as a way to gain money and credibility. Their take was that alliance partners were temporary “fellow travelers,” not lifetime partners. They saw partners simultaneously as friends and foes. The Venus team engaged in extensive debate about alliances. The result was an innovative, alliance-led growth strategy that synthesized the flexible strategic thinking of the younger team members with the realism of the more mature managers. Describing these interactions, the vice president of marketing commented, “We scream a lot, laugh, and resolve the issues.”

Another way that effective strategic decision makers accelerate conflict is by using “frame-breaking” tactics that create alternatives to obvious points of view. One technique is scenario planning: teams systematically consider strategic decisions in the light of several possible future states. Other techniques have executives advocate alternatives that they may or may not favor and perform role-plays of competitors. The details of the techniques are not crucial. Rather, the point is to use and switch among them to prevent stale thinking.

Jupiter, a multibusiness technology firm that has made highly successful acquisitions, provides a good illustration of how the techniques work. One acquisition included a stray business that was not part of the rationale for the purchase. The strategic decision focused on what to do with this business. Managers explored alternatives by creating scenarios of possible futures — such as the Unix operating system prevailing over Microsoft NT or wireless phones becoming more essential than PCs — and then considering how each alternative would play out. They also role-played different competitors to anticipate their responses. In addition, team members used the scenarios to do what is known as “backcasting” to extend their thinking. They envisioned their preferred future (i.e., one in which their firm dominated the market) and then thought backwards about how this ideal future might evolve.

Perhaps the most powerful way to accelerate conflict is by creating multiple alternatives. The idea is to develop alternatives as quickly as possible so that the team can work with an array of possibilities simulta-neously. As one executive at Jupiter commented, “We play a larger set of options than most people.” It is considered entirely appropriate for executives to advocate options that they may not prefer simply to encourage debate.

The executive team at Jupiter, for example, launched its decision-making process to deal with the stray business by quickly developing several alternatives for that business. One called for the acquired business to operate as a new stand-alone division. The second option was to graft the business onto an existing Jupiter strategic business unit; the two businesses could then leverage a common marketing channel. A third option was to combine the business with an existing one with a complementary technology; this combination of businesses would then have sufficient scale to develop the technologies into a more viable business. The final option was to sell the business. Jupiter’s executive team quickly compared options, explored them using the frame-breaking tactics noted above, and chose the third. As one executive observed, “There should be three or four solutions to everything.” Added another, “We have a preference for working a multiple array of possibilities instead of just a couple.”

Why do diverse teams, frame-breaking techniques, and multiple alternatives lead to faster conflict and ultimately more effective decisions? The rationale for diverse teams is clear: these teams come up with more varied viewpoints than homogeneous teams. The value of frame-breaking techniques is more subtle. In addition to the obvious benefit of generating many different perspectives, these techniques establish the norm that constructive conflict is an expected part of the strategic decision-making process. It is acceptable and even desirable to engage in conflict. Furthermore, frame-breaking techniques are intellectually engaging and even fun. They can motivate even apathetic executives to participate more actively in expansive strategic thinking.

The power of multiple alternatives comes from several sources. Clearly, pushing for multiple alternatives speeds up conflict by stimulating executives to develop divergent options. It also enables them to rapidly compare alternatives, helping them to better understand their own preferences. Furthermore, multiple alternatives provide executives with the confidence that they have not overlooked a superior option. That confidence is crucial in rapidly changing markets, where the blocks to effective decision making are emotional as much as cognitive. Finally, multiple alternatives defuse the interpersonal tension that can accompany conflict by giving team members room to maneuver and save face when they disagree. One Jupiter manager told us, for example, that he was strongly against selling the business or setting it up as a stand-alone division. But he could “live with” either of the two combination options.

Maintain the Pace

Less effective strategic decision makers face a dilemma. On the one hand, they believe that every strategic decision is unique. Each requires its own analytical approach, and each unfolds in its own way. On the other hand, these same decision makers believe that they must decide as quickly as possible. Yet making quick choices conflicts with making one-of-a-kind choices.

Effective strategic decision makers avoid this dilemma by focusing on maintaining decision pace, not pushing decision speed. They launch the decision-making process promptly, keep up the energy surrounding the process, and cut off debate at the appropriate moment. They drive strategic decision-making momentum.

One way that these decision makers maintain decision pace is by following the natural rhythm of strategic choice.6 They use rules of thumb for how long a major decision should take. Surprisingly, that metric is a fairly constant two to four months. If a decision takes longer, then the management team is trying to decide too big an issue or is procrastinating. If a decision takes less time, then the decision is not strategic enough to warrant management team attention. These decision makers are able to gauge the scale of a decision by recognizing similarities among strategic decisions. That is, each strategic decision is different, but it falls into familiar patterns whose scope and timing are well-known — for example, new product, new technology, or acquisition decisions. They also view a decision as part of a larger web of strategic choices. This allows executives to adjust the scope of a decision to fit the allotted time frame as the process unfolds. Plus, placing strategic decisions in a larger context lowers the emotional stakes of a choice.

The top-management team at Mars, a leading technology firm, uses a rhythm of three to four months for strategic decisions. Typical strategic decisions include entering or exiting markets, investing in new technology, building manufacturing capacity, or forming strategic partnerships. A decision arose concerning how to enter an emerging Internet-based market in e-commerce tools. Although the team had much to learn about the Internet, Mars executives framed the issue as a market-entry decision; as a result, they knew how to begin to gather relevant data. Because they estimated that the decision should take three months, Mars executives could establish milestones and adjust the decision scope as needed to fit the time frame. As the decision-making process progressed, team members realized that the market opportunity fit into a more complex context of e-commerce business than they had originally envisioned. They therefore reconceptualized the immediate strategic choice as part of the larger e-commerce effort and expanded the size of the market under consideration.

In addition, executives maintain pace by prototyping decisions as they analyze them. Instead of merely analyzing options in the abstract, they test them. For example, the Mars executives simultaneously ex-plored relationships with several potential partners to jointly develop e-commerce tools and tested alternative, in-house product designs with several marquee customers. As a result, they were able to hone their understanding of which tools were essential for their e-commerce entry even as they began to implement parts of the final decision.

Effective strategic decision makers skillfully cut off debate, typically using a two-step method called “consensus with qualification” to bring decision making to a close. First, managers conduct the decision process itself with the goal of consensus in mind. If they reach consensus, the choice is made. If consensus does not emerge, they break the deadlock using a decision rule such as voting or, more commonly, allowing the manager with the largest stake in the outcome to make the decision. In the case of the e-commerce entry decision, Mars executives were divided over whether to develop a key product in-house or in partnership with another firm. The CEO and the vice president of engineering finally made the call. Not everyone agreed with the choice, but each team member had a legitimate voice in the process. As one executive told us, “Most of the time we reach consensus, but when we can’t, Gary [the CEO] pulls the trigger.”

In contrast, less successful strategic decision makers stress the rarity and significance of strategic choices. Because the choice then looms so large, they often procrastinate at the start of the decision-making process. Later, they lack a method for pacing their efforts. They oscillate between letting critical issues languish and making “shot gun” strategic choices against deadlines, as the case of Copper, a modestly successful multibusiness computing firm, illustrates. Managers faced a choice over how to organize a sales channel that was to be shared by several businesses. Sharing the channel offered benefits through cost-sharing and cross-selling of products. Although the opportunity had been apparent for some time, the managers did not get around to doing anything for several months. Everyone was avoiding what appeared to be a big task. Once they did get moving, they attempted to come up with a plan that all the major stakeholders would accept. The decision process stretched out over eight months, with most managers becoming frustrated by the seemingly endless meetings to gain consensus. Several disengaged from the process. Eventually, the head of one major business simply implemented his choice with the field sales force, and the rest of the business heads were left scrambling.

Decision-making rhythm helps managers plan their progress and forces them to recognize the familiar aspects of decision making that make the process more predictable. As significant, it emphasizes that hitting decision timing is more critical than forging consensus or developing massive data analyses. As one manager told us, “The worst decision is no decision at all.” Prototyping encourages managers to take concrete actions that remove some of the unpredictability that can trigger procrastination. Furthermore, prototyping keeps managers focused on the goal of executing a choice and even begins the implementation process. The result is momentum that lowers the cognitive and emotional barriers to choice and that spurs managers toward a conclusion.

Consensus with qualification maintains the pace by taking a realistic view of conflict as valuable and inevitable. Therefore, the endless search for consensus emerges as a fruitless goal. At the same time, consensus with qualification allows decision makers to resolve conflict (and so maintain pace) in a way that team members perceive as equitable. Most managers want a strong voice in the decision-making process but do not believe that they must always get their preferred choice. Consensus with qualification lets decision makers drive decision pace by providing an effective way to reach closure without consensus. For example, at Mars, all the key managers contributed to the market-entry discussion. But when it became apparent that they were stuck in two opposing camps, the CEO and VP of engineering made the call. As one manager observed, “Consensus is nice, but we have to keep up with the train.”

Defuse Politics

Some executives believe that politics are a natural part of strategic choice. They see strategic decision making as involving high stakes that compel managers to lobby one another, manipulate information, and form coalitions. The game quickly becomes a competition among ambitious managers.

More effective strategic decision makers take a negative view of politicking. Since politicking often involves managers’ using information to their own advantage, it distorts the information base, leading to a poor strategic decision-making process. Furthermore, these executives see political activity as wasting valuable time. Their perspective is collaborative, not competitive, setting limits on politics and, more generally, interpersonal conflict.

One way in which effective executives defuse politics is by creating common goals. These goals do not imply homogeneous thinking. Rather, they suggest that managers have a shared vision of where they want to be or who their external competitors are. Managers at Neptune, a successful multibusiness computing firm, are highly aware of their external competition. At their monthly meetings, they pay close attention to the moves of the competition and personalize that competition by referring to individual managers in competitor companies, particularly their direct counterparts. They have a clear collective goal for their own ranking and market-share position in the industry. It is to be number one. At Intel, managers typically contend that “only the paranoid survive.” Neptune’s managers have their own more positive rallying cry: “Let’s get rich together!”

A more direct way to defuse politics is through a balanced power structure in which each key decision maker has a clear area of responsibility, but in which the leader is the most powerful decision maker. At Venus, the CEO is described as a “team player.” Quantitative ratings and qualitative descriptions reveal that he is the most powerful person on the executive team, but that he directs decision making only in the arena of corporate organization. Other members of the executive team direct other decisions: the vice president of engineering runs the product development portfolio, the vice president of manufacturing makes the key supply-chain choices, and so on. As one manager pointed out, “Kim [the CEO] believes in hiring great people and letting them run their own shows.” Paradoxically, the clear delineation of responsibility makes it easier for managers to help one another and share information because each executive operates from a secure power base. As another manager told us, “We just don’t worry much about an internal pecking order.”

Humor defuses politics. Effective strategic decision makers often relieve tension by making business fun. They emphasize the excitement of fast-paced markets and the “rush” of competing in these settings. Senior executives at Mercury have articulated “fun” as a management goal. Laughter is common, and practical jokes are popular, especially around April Fool’s Day and Halloween.

Less effective strategic decision makers usually have an inward, competitive focus. As a result, they lack the sense of teamwork that characterizes more effective teams. The power structure is typically dysfunctional. A good example is Targhee, a modestly successful Internet firm, where the general manager dominates virtually every aspect of the business. As one manager commented, “Chuck runs the entire show.” The result is that the managers who work for Chuck concentrate on impressing him rather than on making smart strategic choices. Another manager observed, “We’re all trying to maneuver around to look good in front of Chuck.” To make matters worse, Chuck constantly blurred the lines of responsibility, leaving managers insecure and jockeying for position. Noted another manager, “It’s like a gun about to go off. I just try to stay out of the cross-fire.”

Common goals, clear areas of responsibility, and humor defuse politicking and interpersonal conflict. Goals that stress collective success or common enemies give managers a sense of shared fate. They see themselves as players on the same team, not as competitors. A balanced power structure gives managers a sense of security that dispels the assumption that they need to engage in politicking. For example, at Venus, there was little evidence of politicking. As one manager stated, “We don’t have time for politics. I barely get to the meetings.” Another said, “We don’t have any kind of political stuff. Nobody lobbies behind other people’s backs. We just get everything out and talk about it.” A third commented, “We’re very apolitical.” As a result, managers did not hold back information, wasted less time on politics, and made faster, more informed decisions.

Humor strengthens the collaborative outlook. It puts people into a positive mood. Research has shown that people whose frame of mind is positive have more accurate perceptions of each other’s arguments and are more optimistic, creative in their problem solving, forgiving, and collaborative. Humor also allows managers to convey negative information in a less threatening way. Managers can say something as a joke that might otherwise be offensive.7

TowardEffective Strategic DecisionMaking

In high-velocity, hotly competitive markets, traditional approaches to strategy give way to “competing on the edge,” where strategic decision making is the fundamental capability leading to superior performance. After all, when strategy is a flow of shifting competitive advantages, the choices that shape strategy matter greatly and occur frequently.

The research data corroborate this view, demonstrating that firms with high performance in profitability, growth, and marketplace reputation have superior (i.e., fast, high-quality, and widely supported) strategic decision-making processes. These processes support the emergence of effective strategy. Firms that were more modest performers had strategic decision-making processes that were slower and more political. Their strategies were more predictable and less effective. Executives in these firms often recognized that their strategic decision making was flawed, but they did not know how to fix it.

I have described the four keys to strategy as strategic decision making:

• Set the stage by building collective intuition through frequent meetings and real-time metrics that enhance a management team’s ability to see threats and opportunities sooner and more accurately.
• Stimulate quick conflict by assembling diverse teams, challenging them through frame-breaking heuristics, and stressing multiple alternatives in order to improve the quality of decision making.
• Discipline the timing of strategic decision making through time pacing, prototyping, and consensus with qualification to sustain the momentum of strategic choice.
• Defuse politics by emphasizing common goals and clear turf, and having fun. These tactics keep decision makers from slipping into destructive interpersonal conflict and time-wasting politics.

Taken together, these approaches direct executive attention toward strategic decision making as the cornerstone of effective strategy.