in Business Design

Creating Strategy in an Unknowable Universe

At Overlap there was a running side conversation about using real options to evaluate product investments. Eric Beinhocker explores a similar idea on the scale of business plans in Creating Strategy in an Unknowable Universe, a summary of his book The Origin of Wealth. Here’s an excerpt:

Rather than thinking of strategy as a single plan built on predictions of the future, we should think of strategy as a portfolio of experiments, a population of competing Business Plans that evolves over time… an example will help illustrate what a portfolio of strategic experiments looks like…

Rather than try to predict the future, [Bill] Gates created a population of competing Business Plans within Microsoft that mirrored the evolutionary competition going on outside in the marketplace. Microsoft thus was able to evolve its way into the future. Eventually, each of the other initiatives was killed off or scaled down, and Windows was amplified to become the focus of the company’s operating-system efforts.

Of course the idea of thoughtfully managing multiple businesses has been around at least since BCG’s matrix, but Beinhocker describes this at the innovation phase rather than the maturity phase. This requres a less analytic, more opportunistic approach that simultaneously relies on the creativity needed to generate new businesses and the discpline to gently tweak investments over time.

Beinhocker providers a hard look at the difficulties in pursuing a strategy that appears to outsiders like a jumble of half-baked ideas. We’ve been facing these issues in our client engagements, helping companies think beyond the traditional financial business case and reframe investment decisions through an evolutionary lens. I’ll have to read the book to see how much of this he’s already addressed.