GE: A Different Company for a Different World

One week ago today, John Flannery took over as the new CEO of General Electric. He’s only the 3rd person in the past 36 years to have held the role. He takes over from Jeff Immelt, who in turn inherited the post from the iconic Jack Welch in 2001. Welch started his reign in 1981.

GE has been around for a long time. It actually predates the Dow Jones Index by 4 years (having been founded in 1892) and is the only one of the 12 original companies listed that still exists. It – perhaps more than any other company – serves as a case study for the evolution of the multi-national mega corporation. But GE is in trouble. Share prices are down. It’s struggling to retain its considerable grip on the industries in which it competes. Flannery has his hands full.

The GE story is also interesting because Jack Welch was the first rock star CEO. In 1981, when the Welch reign began, we were still very much in the era where sheer bulk equaled success. Size bestowed a considerable advantage on companies like GE. Welch recognized this and introduced the now famous “Number One or Number Two” strategy; where he pared down GE’s portfolio to just the industries where they could be either first or second in the world.

Ironically, given that he was lionized as one of the great corporate strategists of his era, Welch was relatively unimpressed with the classic interpretation of strategy.

“Forget the scenario planning, yearlong studies, and 100-plus page reports that “gurus” suggest. They’re time consuming and expensive, and you just don’t need them. In real life, strategy is very straightforward. You pick a general direction and implement like hell.”

It was this embracing of flexibility in planning that eventually led Welch to rethink the rigidity of his “One or Two” dictum. Jeff Immelt followed the same playbook, shutting down portfolios like finance and placing a heavy bet on high tech infrastructure. But despite Immelt’s best efforts, GE’s market cap dramatically eroded, shedding almost 30% and $150 billion in value over his 16-year stint as CEO. When you stack it up against Welch’s numbers – a 2790% increase in market cap in the 20 years his hand was on the steering wheel – it’s hard not to come to the conclusion that Immelt was a horrible CEO and Welch was a super star. But as logical as this seems, it’s based on faulty logic – what Phil Rosenzweig calls the Halo Effect. That fact was, the world of Immelt’s GE was a vastly different place than was the world of Welch’s GE, even setting aside mega events like 9/11 and the financial meltdown of 2008.

In those 16 years, many of economist Ronald Coase’s original reasons why a corporation exists disappeared. Most of them had to do with the market friction that came from a rapidly expanding physical market place. If you want the exhaustive analysis of this, go ahead and plow your way through the 600 plus pages of Alfred Chandler’s seminal work – The Visible Hand. But to pare that down to the barest essentials: it was much more efficient to actually build physical things and distribute them to a geographically dispersed market when you had a vertically integrated corporation where you could manage every step of the process. This was the world in which Jack Welch became the CEO of GE.

That’s not the world we live in today. Because transactional friction has been ruthlessly eliminated by technology, the efficiencies of the open market usually equal and sometimes exceed that of a corporation. Need a massive international transactional platform? The emerging blockchain commons can provide that. Need marketing capabilities that weren’t even dreamt of by even the biggest multinationals just a decade ago? Take your pick of almost 5000 MarTech vendors. Your start up office grown too big for your garage? You can even rent a corporate headquarters, complete with all the bells and whistles.

So the biggest question facing Flannery in 2017 is this: Are mega corporations – and, by extension, GE – even relevant any more? If we stick to Coase’s strict definition, the answer is probably no. But perhaps there’s another reason for corporations to exist: the critical mass of innovation.

Although she was vilified for it, I believe Marissa Mayer was on to this when she herded all of Yahoo’s teleworkers into the same physical location. In the infamous memo, Yahoo’s HR Director, Jackie Reses, said,

“Some of the best decisions and insights come from hallway and cafeteria discussions, meeting new people, and impromptu team meetings. Speed and quality are often sacrificed when we work from home. We need to be one Yahoo!, and that starts with physically being together.”

Mayer defended her decision by first acknowledging that “people are more productive when they’re alone,” and then stressed “but they’re more collaborative and innovative when they’re together.

Researchers have found that when the population of a city grows, the amount of productivity scales supralinearly. If you double the population of a city, you don’t just get a 100% boost in productivity, you also get a 30% bonus. Cities are the most effective innovation engines ever devised. And the reason is simple. When you pack a bunch of intellectually diverse people into the same space, magic happens. Mayer understood this. Unfortunately, the realization was “too little, too late” to save Yahoo but that doesn’t mean her logic was faulty.

As John Flannery steps into the CEO role, he may run full speed into the realization that the benefits once bestowed by being massive have turned into liabilities. What once made GE great now threatens to drown it. But there are still 300,000 different minds that work for GE. Frankly I’m not sure mega corporations can ever be relevant again in a friction-free marketplace, but if they can, the answer lies in the innovation potential of those minds.

Sir Martin and the Terrible, Horrible, No Good, Very Bad Week

Sir Martin Sorrell must feel like he’s trying to hold water in his bare hands.

First, the normally bullish European Investment Bank Exane BNP Paribas – double whammied Sorrell’s WPP last week with a double downgrade – from “outperform” to “underperform” – and dropped their target price for the stock by a whopping 27%. The analyst quoted in the release, Charles Bedouelle, said, “Marketing is driven by mobile, nimbler brands, ecommerce and automation. These areas are dominated by platforms where agencies are sparse, raising the risk of lower mid-term growth.”

Then, just yesterday, Mediapost’s Joe Mandese told us that Pivotal Research Group downgraded the entire ad sector, including Interpublic, Omnicom, Publicis and WPP. This time, analyst Brian Wieser said, “While we continue to expect growth for agencies, challenges that became much more visible by the middle of last year are likely to compress expansion in years ahead vs. prior expectations.”

Or, in simpler terms – “The gig is up Guys.”

WPP and the rest of advertising’s usual suspects have depended on an ad market with a significant amount of inherent friction. Friction creates pockets of value for intermediaries, who turn a profit by dealing with that friction on behalf of its clients. This friction has been relentlessly eliminated from the market in the past two decades thanks to technology. Yes, advertising has become more fragmented, but more significantly, it’s also become more fluid. The advantage once offered by agencies has been flipped into an anchor. Business models founded on the exploitation of friction in markets are not very good at dealing with transparency and fluidity.

When I was heading my own digital service company, we could chart the lifespan of a client with pretty reliable predictability. We specialized in search and most of our clients retained us when they were just starting out. This is the period when there is the greatest amount of friction – starting from standing still. We’d get them up and running and within a few months start delivering some pretty impressive ROI numbers. Over the next few years, we’d expand campaigns and find pockets of unexploited potential. Returns would grow. Budgets would increase. Clients would be happy. Life was good.

For awhile.

But there was an inevitable tipping point. As campaigns matured and Google – bless their techie hearts – relentlessly removed friction from the search advertising market, our perceived value would start to decline. At some point, it became an academic line item decision. When the cost of bringing search in house was less than our agency fees, we knew the end was near. We might prolong it for a year or two but the math was working against us. I remember one particularly somber December 24th when we received word from our largest client that they were not renewing our contract for the coming year. That represented about 16% of our total yearly revenue. And this was a client who loved us to pieces just 12 months earlier. It was not a happy Christmas. But it was pretty hard to argue with their logic.

Now, compared to WPP, we were a pimple on the butt of a flea on the tail of a dog who happened to be riding an elephant. And just like WPP, we were always looking for ways to add value by diversifying in other areas. But I suspect the logic is the same. If you depend on friction to add value, and that friction is disappearing, sooner or later you’ll disappear too. Your business model will slip right through your fingers. Just like water in Sir Martin’s hands.

 

The Death of Sears and the Edge of Chaos

So, here’s the question: Could Sears – the retail giant who has become the poster child for the death of mall-based retail shopping – have saved themselves? It’s an important question, because I don’t think Sears was an isolated incident.

In 2006, historian Richard Longstreth explored the rise and fall of Sears. The rise is well chronicled. From their beginnings in 1886, Richard Sears and Alvah Roebuck grew to dominate the catalog mail order landscape. They prospered by creating a new way of shopping that catered specifically to the rural market of America, a rapidly expanding opportunity created by the Homestead Act of 1862. The spreading of railroads across the continent through the 1860’s and 70’s allowed Sears to distribute physical goods across the nation. This, combined with their quality guarantee and free return policy, allowed Sears to rapidly grow to a position of dominance.

In the 1920’s and 30’s, Robert E. Wood, the fourth president of Sears, took the company in a new direction. He reimagined the concept of a physical retail store, convincing the reluctant company to expand from its very lucrative catalog business. This was directly driven by Sear’s foundation as a mail order business. In essence, Woods was hedging his bet. He built his stores far from downtown business centers, where land was cheap. And, if they failed as retail destinations, they could always be repurposed as mail order distribution and fulfillment centers. But Wood got lucky. Just about the time he made this call, America fell in love with the automobile. They didn’t mind driving a little bit to get to a store where they could save some money. This was followed by the suburbanization of America. When America moved to the suburbs, Sears was already there.

So, you could say Sears was amazingly smart with its strategy, presciently predicting two massive disruptions in the history of consumerism in America. Or you could also say that Sears got lucky and the market happened to reward them – twice. In the language of evolution, two fortuitous mutations of Sears led to them being naturally selected by the marketplace. But, as Longstreth showed, their luck ran out on the third disruption, the move to online shopping.

A recent article looking back at Longstreth’s paper is titled “Could Sears Have Avoided Becoming Obsolete?”

I believe the answer is no. The article points to one critical strategic flaw as the reason for Sear’s non-relevance: doubling down on their mall anchor strategy as the world stopped going to malls. In hindsight, this seems correct, but the fact is, it was no longer in Sears DNA to pivot into new retail opportunities. They couldn’t have jumped on the e-com bandwagon, just as a whale can’t learn how to fly. It’s easy for historians to cast a gaze backwards and find reasons for organizational failure, just as it’s easy to ascribe past business success to a brilliant strategy or a visionary CEO. But the fact is, as business academic Phil Rosenzweig shows in his masterful book The Halo Effect, we’re just trying to jam history into a satisfying narrative. And narratives crave cause and effect. We look for mistakes that lead to obsolescence. This gives us the illusion that we could avoid the same fate, if only we are smarter. But it’s not that simple. There are bigger forces at play here. And they can be found at the Edge of Chaos.

Edge of Chaos Theory

In his book, Complexity: Life at the Edge of Chaos, Roger Lewin chronicles the growth of the Santa Fe Institute, an academic think tank that has been dedicated to exploring complexity for the last 33 years now. But the “big idea” in Lewin’s book is the Edge of Chaos Theory, a term coined by mathematician Doyne Farmer to describe a discovery by computer scientist Christopher Langton.

The theory, in its simplest form, is this: On one side you have chaos, where there is just too much dynamic activity and instability for anything sustainable to emerge. On the other side you have order, where rules and processes are locked in and things become frozen solid. These are two very different states that can apply to biology, sociology, chemistry, physics, economics – pretty much any field you can think of.

To go from one state – in either direction – is a phase transition. Everything changes when you move from one to the other. On one side, turmoil crushes survivability. One the other, inertia smothers change. But in between there is a razor thin interface, balanced precipitously on the edge of chaos. Theorists believe that it’s in this delicate interface where life forms, where creativity happens and where new orders are born.

For any single player, it’s almost impossible to maintain this delicate balance. As organizations grow, I think they naturally move from chaos to order, at some point moving through this exceptional interface where the magic happens. Some companies manage to move through this space a few times. Apple is such a company. Sears probably moved through the space twice, once is setting their mail order business up and once with their move to suburban retail. But sooner or later, organizations go through their typical life cycle and inevitably choose order over chaos. At this point, their DNA solidifies to the point where they can no longer rediscover the delicate interface between the two.

It’s at the market level where we truly see the Edge of Chaos theory play out. The theory contests that adaptive systems in which there is feedback continually adapt to the Edge of Chaos. But, as in any balancing act, it’s a very dynamic process. In the case of sociological evolution, it’s often a force (or convergence of forces) of technology that catalyzes the phase transition from order back to chaos. This is especially true when we look at markets. But this is an oscillation between order and chaos, with the market switching from phases of consolidation and verticalization to phases of chaos and sweeping horizontal activation. Markets will swing back and forth but will constantly be rewarding winners that live closest to the edge between the two states.

We all love to believe that immortality can be captured in our corporate form, whether it be our company or our own body. But history shows that we all have a natural life cycle. We may be lucky enough to extend our duration in that interface on the edge of chaos, but sooner or later our time there will end. Just as it did with Sears.

 

 

 

Don’t Be Evil – Revisited

I have to confess, I was actually a fan of Google’s “Don’t Be Evil” philosophy. Predictably, once they went public with it, the cynics were quick to tear it apart. Was it naïve? Of course it was. The minute Google did anything that smacked of ethical transgression; there were scads of people willing to point fingers. But the fact was, at least Google was trying. It gave those inside the Googleplex a common code of conduct. More than one planning meeting’s blue sky postulation ran up against the “Don’t be Evil” mantra which caused the conversation to veer in another – hopefully less evil – direction.

Some columns back, I talked about the corporate rush to embrace morality and voiced my own skepticism about this born again fervor. I’m skeptical because I don’t believe that capitalism and morality play very nice together. It’s tough to make a profit and make the world a kinder place at the same time. I think you can certainly set your sights in that direction, but as Google found out, if you wear your morality on your sleeve there are many who look for every opportunity to call “bullshit” on you. That’s likely why they downplayed the whole “Don’t Be Evil” thing in 2015 when Alphabet was formed.

But I still think that Google generally tries to be good. And, perhaps not coincidentally, Google is now most valuable brand in the world, according to Brand Finance When you’re a huge company you have your finger in a lot of pies and some of them, inevitably, will upset someone somewhere. The trick here is that what is evil is in the eye of the beholder. Is AirBNB good because they have enabled a new option for travellers to connect with property owners and find better value accommodation, or are they evil because they’re disrupting an established industry and putting thousands of people out of work?

It’s hard to combine the church of morality and the state of profitability. That’s why most corporations elect to keep the two separate. Microsoft is a good example. Under the reign of Bill Gates, Microsoft was even called the “Evil Empire” because of their predatory and monopolistic business practices. Yet Forbes recently tagged Microsoft as having the second best corporate social responsibility program in the world, right behind –you guessed it – Google. How do you reconcile the two? Thanks to the Bill and Melinda Gates Foundation, Bill Gates is one of the world’s most generous philanthropists. He really, really, really wants to make the planet a better place. But as head of Microsoft, he also made a shit load of money (some of which he is currently giving away) by being an asshole. He, perhaps more than anyone, personifies the dynamic tension we talk about when we refer to corporate ethics.

Let’s go back to the value of corporate brands on the Brand Finance list and the role ethics might play. It’s a timely discussion, especially right now. United Airlines was heading in the right direction, 81 on the list, up a whopping 53 spots from 2016. But then they gave the thumbs up to drag Dr. Dao down the aisle in front of an entire plane full of smart phone equipped passengers. Pepsi was number 33 on the list. But that was before the Pepsi marketing execs gave the green light to the Kylie Jenner abomination masquerading as an ad.

There’s evilness, and then there’s just bone-headed, tone deaf, shake your head in bewilderment stupidity. How the hell do these things happen? Even taking into account the “two sides to every story” factor, how did the multiple United staff members who must have had a part in the Dao debacle think that this could possibly be the way to treat a paying customer flying the “Friendly Skies”? How did the Jenner ad pass through what must have been multiple rounds of approval at Pepsi with no one whispering “WTF”?

Here, it’s an issue of culture. Culture is defined by Merriam-Webster as: the set of shared attitudes, values, goals, and practices that characterizes an institution or organization. And the tone of the culture is generally set from the top down. Corporate ethics depend on the ethics of the founders, CEO and executive management. While having a moral CEO might not be enough to guarantee consistent corporate ethics, it’s a lead pipe cinch that if you have a scum-bag in the CEO role, the company is probably going to be a pretty sleazy operation.

Culture depends on clearly understood values and practices that adhere to those values. If this is in place, it gives the rank and file the confidence to hold up their hand when “off-culture” things occur. It would give the United flight attendant the moral obligation to say, “What a minute. Maybe we shouldn’t drag a paying customer who had already been seated forcefully off the plane like a common criminal. That just doesn’t seem right to me.”

Things like Google’s “Don’t Be Evil” dictate may seem naïve in the corporate world, but it was a value that helped define the culture. Perhaps we shouldn’t be so quick to criticize it. Maybe we need more of that particular type of naiveté.

Want to be Innovative? Immerse Yourself!

In a great post earlier this year, VC Pascal Bouvier (along with Aldo de Jong and Harry Wilson) deconstructed the idea that starts ups always equate with successful innovation. Before you jump on the Lean Start Up bandwagon, realize the success rate of a start up taking ideas to market is about 0.2%. Those slow-moving, monolithic corporations that don’t realize they’re the walking dead? Well, they’re notching a 12.5% hit rate. Sure, they’re not disrupting the universe, but they are protecting their profit margin, and that’s the whole point.

The problem, Bouvier states, is one of context. Start-ups serve a purpose. So do big corporations. But it’s important to realize the context in which they both belong. We are usually too quick to adopt something that appears to be working without understanding why. We then try to hammer it into a place it doesn’t belong.

Start-ups are agents in an ecosystem. Think of them like amino acids in a primordial soup from which we hope, given the right circumstances, life might emerge. The advantage in this market-based ecosystem is that things move freely – without friction. Agents can bump up against each other quickly and catalysts can take their shot at sparking life. It is a dynamic, emergent system. Start-ups are lean and fast-moving because they have to be. It is the blueprint for their survival. It is also why the success rate of any individual start-up is so low. The market is a Darwinian beast – red of tooth and claw. Losers are ruthlessly weeded out.

A corporation is a different beast that occupies a different niche on the evolutionary timeline. It is a hierarchy of components that has already been tested by the market and has assembled itself into a replicable, successful entity. It is a complex organism and has discovered rules that allow it to compete in its ecosystem as a self-organized, vertically integrated, hopefully sustainable entity. In this way, it bears almost no resemblance to a start up. Nor should it.

This is why it’s such a daunting proposition for a start up to transition into a successful corporation. Think of the feat of self-transformation that is required here. Not only do you have to change your way of doing things – you have to change your very DNA. You have to redefine every aspect of who you are, what you do and how you do it.

If you pull out your perspective dramatically here, you see that this is a wave. Call it Schumpeterian Gale of Creative Destruction, call it a Kontdratiev Wave, call it whatever you like – this is not simply a market adaptation – this is a phase transition. The rules on one side of the wave are completely different than on the other side – just as the rules of physics are different for liquids and gases. And that applies to everything, including how you think about innovation.

We commonly believe start-ups are more innovative than corporations. But that’s not actually true. It’s the market that is more innovative. And that innovation has a very distinct characteristic. It comes from agents who are immersed in a particular part of the market. As Bouvier points out in his post, start up CEO’s solve a problem that’s “right in front of their nose.” Think of the typical start up founder. They are ear lobe deep in whatever they are doing. From this perspective, they see something they believe to be a need. They then set out to create a new solution to that need. This is the sense making cycle I keep talking about.

For a lot of start ups, sense making is ingrained. The entrepreneur is embedded in a context where it allows them to make sense of a need that has been overlooked. The magic happens when the switch clicks and the need is matched with a solution. Entrepreneurs are the synaptic connections of the market, but this requires deep immersion in the market.

There’s something else about this immersion that’s important to consider – there is nothing quantitative about it. It’s organic and natural. It’s messy and often chaotic. It’s what I call “steeping in it.” I believe this is also important to innovation. And it’s not just me. A recent study from the University of Toronto shows that creativity thrives in environments free of too much structured knowledge. The authors note, “A hierarchical information structure, compared to a flat information structure, will reduce creativity because it reduces cognitive flexibility.”

Innovation requires insight, and insight comes from being intimately immersed in something. There is a place for data analysis and number crunching, but like most things, that’s the other side of the quant/qual wave. You need both to be innovative.

 

The Chaos Theory of Marketing

Last week, I wrote why marketers are struggling with job security. In an effort to provide career counseling to an industry, I would offer this suggestion: start learning about the behaviors of non-linear dynamic systems. You’re going to have to get comfortable with the special conditions that accompany complexity.

Markets are always complex, but there’s a phenomenon that gives them the illusion of predictability. This phenomenon is potential. Potential, in this instance, means the gap between the current market state and a possible future state. The presence of potential creates market demand. Every time a new product is introduced, a new potential gap is created. Supply and demand are knocked out of balance. Until balance is regained, the market becomes more predictable.

Here’s an analogy that makes it a little easier to understand how this potential can impact the behaviors of a complex market. A model that’s often used to explain complexity is to imagine a pool table filled with balls. The twist is that each of these balls is self propelled and can move in any direction at random. Imagine how difficult it would be to predict where any single ball might go.

Now, imagine taking this same pool table and lifting one of the corner legs up 6 inches, introducing the force of gravity as a variable. Individual predictions are still difficult, but you’d be pretty safe in saying that the pocket that was diagonally opposite to the raised leg would eventually collect more than it’s fair share of balls. In this example, gravity plays the role of market potential. The market still behaves in a complex manner but there is a consistent force – the force of gravity – that exerts its influence on that complexity and makes it more predictable.

Marketing is built on exploiting potential – on capitalizing on (or creating) gaps between what we have and what we want. These gaps have always been around, but the nature of them has changed. While this potential was aimed further down Maslow’s hierarchy, it was pretty easy to predict purchasing behaviors. When it comes to the basics – meeting our need of food, water, shelter, safety – humans are all pretty much alike. But when it comes to purchases higher up the hierarchy – at the levels of self-esteem or self-actualization – things become tougher to predict.

Collectively, the western world has moved up Maslow’s hierarchy. A 2011 study from Heritage.org showed that even those living below the poverty line have a standard of life that exceeds those at all but the highest income levels just a few decades before. In 2005, 98.7% of homes had a TV, 84% had air conditioning, 79% has satellite or cable TV and 68% had a personal computer.

But it’s not only the diversification of consumer demand that’s increasing the complexity of markets. The more connected that markets become, the more unpredictable they become. Let’s go back to our overly simplified pool ball analogy. Let’s imagine that not only are our pool balls self-propelled, but they also tend to randomly change direction every time they collide with another ball. The more connected the market, the greater the number of collisions and subsequent direction changes. In marketing, those “collisions” could be a tweet, a review, a Facebook post, a Google search – well – you get the idea. It’s complex.

These two factors; the fragmentation of consumer demand and the complexity of a highly interconnected market, makes predicting consumer behavior a mug’s game. The challenge here is that marketing – in a laudable attempt to become more scientific – is following in science’s footsteps by taking a reductionist path. Our marketing mantra is to reduce everything down to testable variables and there’s certainly nothing wrong with that. I’ve said it myself on many occasions. But, as with science, we must realize that when we’re dealing with dynamic complexity, the whole can be much greater than the sum of its testable parts. There are patterns that can be perceived only at a macro scale. Here there be “black swans.” It’s the old issue of ignoring the global maxima or minima by focusing too closely on the local.

Reduction and testing tends to lead to a feeling of control and predictability. And, in some cases (such as a market that has a common potential) things seem to go pretty much according to plan. But sooner or later, complexity rears its head and those best laid plans blow up in your face.

 

 

How Vision and Strategy Can Kill a Marketer’s Job Security

“Apparently, marketers today are losing confidence in their ability to meet key goals, like reaching the right customers with their marketing efforts, or being able to understand or evaluate the ROI of their marketing plans.”

Dave Morgan – Why Are Marketing Losing Confidence in Their Ability to Do Their Jobs?

“I think marketing is going to be getting much, much easier over the next couple of years.”

Cory Treffiletti – CMOs’ Vision Crucial to their Success

A couple of weeks ago, my fellow Spinners offered these two seemingly contradictory prognoses of the future of marketing. The contradiction, I believe, is in the conflation of the ideas of media buying and marketing. Yes, media buying is going to get easier (or, at least, more automated). And I agree with Cory’s prediction of consolidation in the industry. But that doesn’t do much to ease the crisis of confidence mentioned by Dave Morgan. That’s still very real.

The problem here is one of complexity. Markets are now complex. Actually, they’ve always been complex, but now they’re even more complex and we marketers can no longer pretend that they’re otherwise. When things get complex, our ability to predict outcomes takes a nosedive.

At the same time, an avalanche of available data makes marketers more accountable than ever. This data, along with faster, smarter machines, offers the promise of predictability, but it’s a dangerous illusion. If anything, the data and AI is just revealing more of the complexity that lurks within those markets.

And here is the crux of the dilemma that lives between the two quotes above. Yes, marketing is becoming more powerful, but the markets themselves are becoming more unpredictable. And marketers are squarely caught on the horns of that dilemma. We sign on to deliver results and when those results are no longer predictable, we feel our job security rapidly slipping away.

Cory Treffiletti talks about vision – which also goes by the name of strategy. It sounds good, but here’s the potential problem with that. In massively complex environments, strategy in the wrong hands can become a liability. It leads to an illusion of control, which is part of a largely disproven and outdated corporate mindset. You can blindly follow a strategy right into a dead end because strategies depend on beliefs and beliefs can dramatically alter your perception of what’s real. No one can control a complex environment. The best you can do is monitor and react to that environment. Of course, those two things can – and should – become a strategy in and of themselves.

Strategy is not dead. It can still make a difference. But it needs to be balanced with two other “S’s” – Sense making and Synthesis. These are the things that make a difference in a world of complexity.

You have to make sense of the market. And this is more difficult than it sounds. This is where the “Strategy” paradox can creep up and kill you. If your “Vision” – to use Cory Treffiletti’s term – becomes more important to you than reality, you’ll simply look for things that confirm that vision and plunge ahead, unaware of the true situation. You’ll ignore the cues that are telling you a change of direction may be required. The Sense Making cycle starts with a “frame” of the world (a.k.a. “Vision”) and then looks for external data to either confirm and elaborate or refute that frame/vision. But the data we collect and the way we analyze that data depends on the frame we begin with. Belief tends to make this process a self-reinforcing loop that often leads to disaster. The stronger the “vision,” the greater the tendency for us to delude ourselves.

sensemaking2

Sensemaking: Klein, Moon and Hoffman

If you can remain objective as possible during the sense making cycle you then end up with a reasonably accurate “frame” of your market. This is when the Synthesis part of the equation takes over. Here, you look at your strategy and see how it lines up with the market. You look for new opportunities and threats. Knowing the market is unpredictable, you take the advice of Antifragile author Nassim Nicholas Taleb, minimizing your downside and maximizing your upside. You pull this together into a new iteration of strategy and execute like hell against it. Then you start all over again.

By going through this cycle, you’ll find that you create a wave-like approach to strategy, oscillating through phases of sense making, synthesis and strategic execution. The behavior and mindsets required in each of these phases are significantly – and often diametrically – different. It’s a tough act to pull off.

No wonder marketers are having a tough time right now.