How and why better corporate theories generate better strategies “with a higher possibility of success”
Long ago, Peter Drucker observed, “There is surely nothing quite so useless as doing with great efficiency what should not be done at all.” Change agents should keep that observation clearly in mind when formulating and then executing a theory to achieve and then sustain value creation for itself by creating and then sustaining value for the clients and customers it is privileged to serve.
In Beyond Competitive Advantage, Todd Zenger argues that a unique and insightful corporate theory is the key to sustaining value-creating growth.
What specific benefits does this corporate theory offer? According to Zenger, it provides decision-makers with an enhanced vision or perspective in three separate but interdependent ways:
1. Foresight concerning the future evolution of the relevant industries, technologies, and customer tastes
2. Insight regarding sustainably unique assets, resources, and activities possessed by the firm
3. Cross-sight that recognizes patterns of complementarity between and among assets, activities, and resources both within and outside the firm.
“A central message of the book is that a strategist seeking to sustain value creation needs more than a map to a position. A strategist needs a corporate theory of value creation, something that provides ongoing guidance to the selection of positions and a vast array of strategic actions. In much the same way that a scientist’s insightful theory reveals promising experiments to conduct, a well-crafted corporate theory reveals a succession of promising strategic experiments — a succession of strategies and strategic choices.”
He goes on to observe, “Better corporate theories reveal better strategies — strategies with a higher probability of success. Moreover, a well-crafted corporate theory elevates the strategist’s task of sustained value creation from a series of a la carte decisions about acquisitions, investments, design, financing, integration decisions, and leadership, each guided by rather fragmented logic, to a more coherent set fob choices guided by a synthetic logic.”
In this context, I am again reminded of the fact that, in 1865, a German physicist, Rudolph Clausius (1822-1888), coined the term entropy during his research on heat. The word’s meaning “a turning towards” (in Greek, en+tropein), “content transformative” or “transformative content.” Claudius used the concept to establish a mathematical foundation for the second law of thermodynamics: without the injection of free energy, all systems tend to move (however gradually) from order to disorder, if not to chaos.
In Leading Change, Jim O’Toole suggests that the strongest resistance to change seems to be cultural in nature, the result of what he so aptly characterizes as “the ideology of comfort and the tyranny of custom.”
I commend Todd Zenger on the abundance of information, insights, and counsel that he provides. This material will help decision-makers in almost any organization — whatever its size and nature may be – to formulate better corporate theories that generate better strategies “with a higher possibility of success.”
One final point, provided by Michael Porter: “The essence of strategy is choosing what not to do.”
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Todd Zenger is the newly appointed N. Eldon Tanner Chair in Strategy and Strategic Leadership at the David Eccles School of Business at the University of Utah. He also holds the University of Utah designation as a Presidential Professor. From 1990 through July of 2014, he served as a faculty member at Washington University in St. Louis in the Olin Business School, most recently as the Robert and Barbara Frick Professor of Business Strategy. He also previously held appointments there as senior associate dean, as chair of the strategy group, and as academic director of the Executive MBA program. While there he received numerous awards for his executive MBA and professional MBA teaching. He completed his undergraduate degree in economics at Stanford University and his PhD in strategy and organization at UCLA.