How Does One Create Strategy

A crucial question is how we can create strategies for our organization. The strategy field has many skeletons in the closet that are known and spoken about behind closed doors. Every now and then, a prominent member of the community airs this in public. Gary Hamel is founder and Chairman of Strategos, Visiting Professor at the London Business School and Thomas S. Murphy Distinguished Research Fellow at Harvard Business School. At a conference sponsored by the consulting firm McKinsey and Company, Hamel remarked:

"The dirty little secret of the whole strategy industry, from business schools to consulting companies, is that we don’t have a theory of strategy creation. We don’t know where strategies come from. And I think the fundamental question is how you increase the probability that good strategies will emerge."

Some people tell you that their strategies arise from trial and error, in other words, from reflective action. Bricolage is a word from the French meaning "to tinker" or "to fiddle." In an ambiguous, novel or complex situation, people often resort to bricolage since they may feel there is no other option but to try something out and learn from experience. This methodology can be extremely frustrating, however, and studies have shown usually results in numerous dead-ends, unintended consequences and sometimes overall failure.

Others believe that strategies can be constructed from general principles, using data analysis to weigh various alternatives and rationally choosing the alternative that is expected to lead to the best outcome. This scientific and systematic style of strategy formulation as advocated by most business schools has shown to be successful in information rich settings in mature, stable industries that are not undergoing significant change. Many executives faced with strategy formation with limited data in turbulent times with multiple forces at play report that deduction is simply not practical. In addition, the deductive approach often relies on breaking a challenge into smaller parts and tackling each part separately. There are many challenges that will not lend themselves to a reductionist approach.

Giovanni Gavetti and Jan W. Rivkin in the article "How Strategist Really Think: Tapping the Power of Analogy" published in Harvard Business Review back in 2005 state:

"In particular, reasoning by analogy plays a role in strategic decision making that is large but largely overlooked. Faced with an unfamiliar problem or opportunity, senior managers often think back to some similar situation they have seen or heard about, draw lessons from it, and apply those lessons to the current situation."

Indeed, the use of analogous reasoning to transfer concepts from one domain to another is a key cognitive process used in creative thinking. Analogous reasoning can be a source of remarkable insight and has been shown to be behind some of the most famous innovations.

We believe the significance of analogous reasoning goes even deeper and is a critical component for teaching any thinking skill – not only creative thinking, but critical thinking or strategic thinking. For a long time, educators believed that thinking skills are like any another skill, such as riding a bicycle. Once you learn it, you can apply it in any other situation. Unfortunately, this has turned out not to be the case since thinking is intertwined with the content of thought. Teachers will tell you how frustrating it is to watch students fail to solve a new problem when it is just applying a solution of another problem they can easily answer to a new context.

Gavetti and Rivkin remark: "Though analogical reasoning is a powerful and prevalent tool, it is extremely easy to reason poorly through analogies, and strategists rarely consider how to use them well. Indeed, analogies’ very potency requires that they be used wisely…Dangers arise when strategists draw an analogy on the basis of superficial similarity, not deep causal traits."

Nevertheless, there is significant evidence that real strategists use reasoning by analogy in real life where the stakes are high, information often inadequate, conditions constantly shifting and the consequences of actions uncertain.