Adventure of Strategy

Further to my blog posting earlier this week ago calling for a more sophisticated approach to the tools that firms employ to craft strategy, herewith an article to be published in December this year in the Annals of The New York Academy of Sciences. Titled Neurocognitive Inefficacy of the Strategy Process , it holds back no punches when attacking either Michael Porter's 'Five Forces' for that ubiquitous old faithful, the SWOT analysis. Thanks to Stephanie West-Allen for the pointer! Click the title above for a PDF of the unedited manuscript, or click below for a brief summary courtesy of yours truly.

Here's a 'sound byte' :

"The application of purportedly  “rational” tools or techniques or protocols or models or frameworks to the problem of new strategy formation appears overwhelmingly ineffectual. Few, if any, organizations actually obtain new or revised strategy from such efforts. When the genesis of a dramatic change in an organization’s objectives and strategies finally is tracked down, it invariably is the result of an “informal” process, more often than not unrelated to the formal planning effort itself."

Fighting talk, indeed!!! I'm pleased to find yet another person pointing out that the strategic planning emperor has no clothes, though! There is just too much at stake for the firms that we serve for the smoke and mirrors that so often masquerades for a strategy process.

The authors of the paper are Harold E. Klein of the Department of General & Strategic Management at the Fox School of Business and Management at Temple University and Mark D'Esposito who is Professor of Neuroscience and Psychology at the University of California, Berkeley.

The abstract of the article reads as follows:

"The most widely used (and taught) protocols for strategic analysis – SWOT and Porter’s (1980)
Five Force Framework for industry analysis – have been found wanting as stimuli to strategy
creation or even as a basis for further strategy development. We approach this problem from a
neurocognitive perspective. We find profound incompatibilities between the mental image
representations evoked by these strategic analysis frameworks and the neural processes going on
within the brain that comprise “thinking.”  The analytical structure (or “propositional
representation”) of these tool results in a mental dead end, the phenomenon known in
psychology as “functional fixedness.” The difficulty lies with the inability of the brain to make
out meaningful (i.e., strategy provoking) stimuli from the mental images (or “depictive
representations”) generated by strategic analysis results. We propose decreasing dependence on
these tools and further research employing brain-imaging technology to explore strategy
protocols with richer mental representation potential for strategy creation."

As Henry Mintzberg pointed out in his seminal work The Rise and Fall of Strategic Planning, strategy is a 'right brain' creative activity involving synthesis. Analysis (which he deemed "planning") is a 'left brain' number-crunching activity that is the very antithesis of creativity.

More interesting still is what the paper has to say about the two actual tools mentioned earlier. Although there is a fair amount of research available about perceptions about strategy tools, there is very little empirical study about their efficacy. There is one study about the SWOT analysis, by Hill and Westbrook, that is illuminating.

"Thanks to a UK Government-funded effort to encourage and facilitate the use of  rational planning and decision-making practices, a series of professional consultants were teamed with various company managements to assist them in going through a formal strategic planning process, following exactly the same protocol. One step, in each case, was the performance of a “SWOT Analysis.”  Hill and Westbrook examined the resulting strategic planning results. They did not find one instance among the twenty where the SWOT results were used at all in subsequent steps of the planning exercises (in 14 of the 20 cases, professional strategic planning consulting assistance was provided). They concluded that the use of SWOT analysis should be discontinued."

Not overly promising, I'm sure you'll agree. I recall several occasions, though, very early on in my strategy career, where I facilitated most enjoyable and intellectually stimulating SWOT analyses for clients, only to look back later on during the process and conclude that they added absolutely nothing substantial beyond serving as an icebreaker. SWOT analysis is particularly useless when one starts with 'Strengths' and progresses to 'Threats' as suggested by the name. That inevitably leads to an extended period of navel gazing. So if you do insist on using the tool, at least follow the sequence suggested by the acronym 'TOWS.' That way you will start with the external issues which is indeed valuable and will at least give some useful context to the navel gazing.

While there is no empirical research about the efficacy of the Five Forces Model (astounding, given its pre-eminence in many strategic processes,) the authors find enough very solid logic to cast serious doubt on it too.

If you're still reading this and are still fascinated, then I strongly recommend that you read the article in its entirety. To save you from scrolling back to the top of the page, here's the link to the PDF again here.