The Strategy Paradox: Why Committing To Success Leads To Failure and What To Do About It.

The Strategy Paradox: Why Committing To Success Leads To Failure and What To Do About It; Michael E. Raynor; Currency Books; 2007; 303pp., $27.50.

Michael Raynor, of Deloitte Consulting LLP, and coauthor of the best-selling The Innovator's Solution, makes a compelling case in his book why well-thought-out plans fail utterly even when executed flawlessly, due to the inability of managers to predict the future despite their strategic plans. He questions the role of conventional strategic planning methodologies in committing the resources today to a specific outcome based on a future that is unknown and highly unpredictable. Raynor has researched the core issues and the unpredictable outcomes of business strategies in an intelligent and robust way and provides several frameworks and approaches to manage the risk and successfully plan for the future.

In a nut shell, Raynor's book is "lessons from failures" because the strategies designed for great success lead to major failures by some of the most successful firms--The Strategy Paradox. It is an authoritative text with hundreds of resources drawn from business, mathematics, anthropology, psychology and social sciences. The references at the end of each chapter are a great resource for any strategic thinker, business student or strategic planner.

The Strategy Paradox is organized into two broad sections, with five chapters in each. Chapter 1 discusses the broad concept of strategy paradox and the underlying reasons, with a synopsis of the rest of the chapters. Chapter 2 is the most fascinating account of the evolution of consumer preferences around electronic formats (VHS vs Sony Betamax) and the commitments made by major firms to dominate the emerging market in the 1970s and 1980s. This chapter alone should suffice to convince the reader of the "strategy paradox" and why firms tend to commit major resources to succeed in an unpredictable market place. The author has done an outstanding job of analyzing the complex set of market factors, competitive threats and consumer preferences in detailing why large rational commitments made on particular outcomes could indeed become major failures.

The strategy paradox is eleborated in Chapter 3 and Raynor discusses how the extreme positions of product differentiation and cost reduction allow companies to become highly profitable and undertake high-risk ventures. The strategies based on either product differentiation or cost reduction require huge commitments and increase the probability of success (when customers favor their strategy) and failure (when the market conditions shift in an unpredictable way).

Chapter 4 discusses a company's need to adapt its strategy to the business conditions and its ability (or inability) to match the pace of change with the external environment. This was illustrated by the sudden changes experienced by the telecommunications equipment makers during the rush to build the next-generation networks, and the dot-com bubble thereafter. The author discusses how firms such as Cisco, Qualcomm and Texas Instruments had developed strategies that allowed them to quickly adapt to the changes in the business conditions, whereas the strategies of Nortel, JDS Uniphase and Lucent did not allow them to recover easily from the 2000 crash. On the other hand, the pace of competition experienced by integrated steel mills was rather minimal and slow at the beginning, and the strategic responses of the integrated mills to the emerging competition proved to be detrimental and too costly for the big steel firms.

Chapter 5 discusses the limits of forecasting and our inability to predict change accurately as part of firms' annual strategic planning activities. Raynor emphasizes in Chapter 6 that uncertainty increases with longer time horizons, and the organizational responsibility of managing the strategic risk profile and uncertainty shifts from the functional to the corporate level.

Chapter 7 illustrates how technology-based companies Vivendi Universal, BCE and Microsoft managed their uncertainty resulting from the convergence of telecommunications, media and technology. The rapid pace of technological evolution provided great opportunities for dominating the new media while the risk of committing to a particular strategy proved to be difficult to predict. The author argues that Vivendi's commitment to a particular strategy proved to be disastrous, whereas Microsoft's ability to pursue (multiple) real options-based approaches rewarded the company greatly.

Raynor provides a framework and a tool kit in Chapter 8 to manage the strategic uncertainty using a real options approach incorporating Johnson and Johnson's methodology. The framework is based on 1) anticipating the future by building many different scenarios and the optimal strategies for each of those futures, and 2) accumulating the options needed to manage the strategies and managing the portfolio of options. Scenarios provide a means of clustering many different variables so that a coherent view can be expressed as a single narrative around a particular scenario. Raynor notes that expressing the future around carefully crafted scenario(s) allows the management to capture vastly different alternatives impacting the firm. The framework is further elaborated in Chapter 9 to convince the reader that scenario-based planning allows a company to commit modestly to capture the full range of possibilities over five to ten years.

While the book is an excellent addition to the strategy, the author could have condensed it and at the same time provided many more diverse examples drawn from different industries. For example, is the scenario-based strategy relevant for fast-moving consumer goods industries? Could management have anticipated the broad challenges facing the health care industry and built possible scenarios around it? How relevant is the scenario-based planning to the chemical, industrial and petrochemical sectors, and what are the limits of scenario-based planning'?

While the book is scholarly as opposed to gripping, it should prove valuable to the readers of Research * Technology Management who need to build a portfolio of strategic options. The book provides many insights from the past and teaches senior managers that there are no simple solutions to managing the strategic uncertainty around the future.

Seetharama C. Deevi. director, global innovation, Philip Morris USA, Richmond, Virginia. Seetharama.C.Deevi@pmusa.com