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In an exponential world, it stands to reason that our traditional, linear approaches to strategy will need to be re-thought from the ground up. One way to characterize the big shift in strategy is that we are moving from strategies shaped by terrain to strategies shaped by trajectory. What do I mean by this?

Strategies of terrain

If you think about traditional approaches to strategy, they were profoundly shaped by the current landscape. The job of the strategist was to look across the surrounding terrain from the vantage point of the company and determine what were the most favorable positions to occupy – where could the company build positions of sustainable competitive advantage? Sure, there was a dynamic component to the strategy – your actions could alter the landscape and any good strategist would need to anticipate the likely actions of existing competitors and potential new entrants. But the starting point was always your current position and the current landscape surrounding your existing position.

But as the world changed, so did strategy. As the terrain become more unstable, evolving at a faster and faster rate with increasing uncertainty as to potential outcomes, the horizon of the strategist began to shrink in two ways. First, strategists shifted from a view of the external terrain to a view of the internal terrain. Rather than looking at the structure of markets or industries, the strategist began to focus on “core competencies.” Strategists started to look inward, at the terrain within the company, in a systematic effort to identify the existing capabilities that were world-class and focus on approaches to strengthen those core competencies even more.

In parallel, there was a move to strategy as “hustle”. Since the external terrain was evolving more and more rapidly with increasing uncertainty about outcomes, this school of strategy argued that those who could sense and respond most quickly to the near-term events would be the ultimate winners. The only terrain that mattered was the terrain immediately surrounding the company and the relevant time frame was today, not tomorrow.

But here’s the problem. In a world that’s more rapidly changing, there’s a significant risk involved in focusing on a narrowing terrain today. The core competency approach can be easily blind-sided if it turns out that the capabilities that are creating great economic value today suddenly become obsolete. We may be focusing on making better and better buggy whips while missing the fact that the market is shifting from horse drawn carriages to cars.

The hustle approach has a different problem. First, it runs the risk of spreading the resources of the company way too thinly across too many fronts as the company races to respond to all incoming actions without any ability to prioritize which of these events are really enduring versus one-off distractions. Second, day to day hustling as a hard time dealing with fundamental disruptions that require more than an incremental, short-term response. If we are moving from horse drawn carriages to cars, we may need to respond with more than hustle.

I would suggest that our efforts to evolve terrain-based strategies to cope with an exponential world are yielding rapidly diminishing returns. If you want evidence of this, check out our analysis of the collapse of return on assets for all public companies in the US since 1965.

Strategies of trajectory

What we need to do at this point is to step back and reassess at a more basic level our approach to strategy. Rather than focusing on terrain, however narrowly or broadly defined, perhaps we should shift our attention to trajectory.

Here’s the paradox. At precisely the time that change is accelerating and uncertainty increasing, we need more than ever to have a clear view of the trajectory of change and how it will reshape the business landscape in the decades ahead. We also need to assess carefully what degrees of freedom we might have in shaping these outcomes through our actions, rather than simply taking them as a given. We then need to develop strategies that will put our companies on a trajectory to compete more effectively on a rapidly changing terrain.

Rather than looking from the present out to the future, we need to look from the future back to the present to determine which actions will have the greatest impact and create the most economic value over time. As Yogi Berra famously observed, “You’ve got to be very careful if you don’t know where you’re going, because you might not get there.” The winners in a more intensely competitive world will be those who know where they are going and accelerate their movement in the most promising direction.

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Here is a direct link to the complete article.

John Hagel is co-chairman for Deloitte LLP’s Center for the Edge with nearly 30 years of experience as a management consultant, author, speaker and entrepreneur. He has served as senior vice president of strategy at Atari, Inc., and is the founder of two Silicon Valley startups. Author of The Power of Pull, Net Gain, Net Worth, Out of the Box, and The Only Sustainable Edge, John holds a B.A. from Wesleyan University, a B.Phil from Oxford University and a J.D. and MBA from Harvard University.