The Purpose of Strategy

| December 22, 2008 | Reply

I am reading a quick note from Phil Rosenzweig, Wharton and Harvard guy:

"High performance comes from doing things better than rivals, which means that entrepreneurs have to take risks. Decisions must be made where there isn't 100% accuracy. Thus, strategy involves making decisions under uncertainty.

The goal of strategic analysis should therefore be one of gathering accurate information and subjecting it to careful scrutiny, not in the false hope of guaranteeing success, but in order to improve the odds of success. Wise managers know that business is about finding ways to improve the odds of success—but never imagine that it is a certainty."

This is similar to a book that I am reading on equity market timing (called Trend Following). The essence of Trend Following is that you are simply using momentum and price action as a means to give a slight edge in statistical probability that you are choosing correctly. In fact, you expect to lose 60-70% of the time. But you cut your losses early and let the winners run. Those winners produce enough profit to overcome the losers.

In business process, it is called "Seed, Select, Amplify".

Plant a lot of idea seeds. See which ones start to grow. Select them, and Amplify the amount of sun, water, food you give them.

Thus since high performance is dependent on the decision making process, it is important that the process is learned and taught at all levels of the company. In fact, there is not a direct correlation between the actions of the decision and the outcome. Sometimes, due to events not within our control, those actions do not lead to the most favorable outcomes. It becomes important that the company applaud those that work through the decision-making risk assessment with strategic clarity.

No matter what the outcome, executive should be asking: Were the full range of options identified, or were some overlooked? Did we gather the right information or had some important data been overlooked? Did we make our calculations accurately, or were some in error? Did we properly anticipate obstacles and remedies, or did we not think about ensuing challenges?

The purpose of strategy is to weigh the probabilities of outcomes based on the information we have. Then, to adjust the strategy according to the results we see.

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Category: At Work, Business Philosophy, Start-Ups