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The Integrative Perspective: Competitive Strategy

May 6, 2012

MIT makes much of its integrative approach to management education. You may recall that the first Intensive, LIM Week (Leadership and Integrative Management), engaged students in a 9 day long deep dive into a global firm, in our case WalMart. This deep dive teaches students that general managers must be able to simultaneously view a firm from several different analytical vantage points (finance, strategy, operations, etc.), and then integrate those points of view into a single plan. MIT seeks to educate general managers who have a particular skill in this integrative approach to management.

While the first semester’s foundation courses in accounting and economics are somewhat self-contained, Competitive Strategy  begins to pick up the Integrative theme and put it to work in the second semester.

I have to begin this story with a disclosure. Prior to taking the course, my intellectual position was perhaps best described by the well-worn Clausewitzian-sounding maxim, “Amateurs talk strategy, dilettantes talk tactics, professionals talk logistics.”

At this point in my career, I was quite tired of talking strategy.  More talk of strategy did not excite me. I had burned away far too many hours and far too much cash in my prior companies participating in finely dissected arguments over whether a “first to market” or a “fast follower”  strategy was ultimately superior. Where does our competitive advantage lie? What will make it sustainable? Such meetings made for fine debate, but ultimately proved of little value as the management team, the Board, and the investors were all far too caught up in their dreams of what this little start-up company could one day be… and insufficiently focused on getting there – or anywhere, for that matter.

Such were my frustrations that I preferred a well-executed, half-baked plan over the spending time and resources to perfect a plan against which we did little to execute. My view was that the world moved at such a pace and with such uncertainty that the best laid plans of entrepreneurs gang aft agley…

Like Burns’ mouse, I had seen too many entrepreneurial teams lying “cozie here… till crash! the cruel coulter past, out thro’ thy cell.” For those of you who have never farmed, a coulter is the sharp disk that cuts the ground immediately in front of the plough. Evidently one of my ancestors invented it, as the family name comes from a loch, near Stirling, in Scotland. I hear the trout fishing is particularly good, but I’ve never been.

What is really the point of talking about strategy if your young company can barely execute? Why spend so much precious time choosing a strategy, when the cruel and volatile world is likely to suddenly change, leaving countless hours of discourse a wasted shambles?

There’s a certain intellectual honesty at MIT that I particularly like. The EMBA program continually pulls down false notions born of prejudicial experience by forcing a confrontation between past failures and rigorous theory.  It isn’t good enough to say that something worked or didn’t work in the past. There must be an analytical framework within which to consider the source of the success or failure. MIT continually returns to the science of management and, in this case, even a topic as ephemeral as strategy is subject to a data-driven, scientific method.

I was impressed.

The course begins with the observation that some companies, and some industries, regularly generate significantly higher returns than others and poses the question, why? Strategy from this point of view is about understanding and exploiting the structure that exists in an industry.

Competitive strategy begins with Porter’s well-respected industry analysis techniques. Five force models, together with the strategic frontier provide a familiar basis for structural description. And here the integrative approach begins. Economic theory is layered onto these structural descriptors to provide the executive with a firm understanding of the economic source of the competitive structure of the industry. Pierre Azoulay, one of the course instructors, continually enforces rigorous economic analaysis. Strategy at MIT must be accompanied by a spreadsheet clearly demonstrating its financial underpinnings. He constantly presses students to rethink their assumptions, their approach and especially their conclusion. Professor Azoulay’s use of the Socratic method reminded me of the fictional Professor Kingsfield, from the Paper Chase, and that character’s famous monologue,

“We use the Socratic Method here. I call on you, ask you a question, and you answer it. Why don’t I just give you a lecture? Because through my questions, you learn to teach yourselves. Through this method of questioning, answering, questioning, answering, we seek to develop in you the ability to analyze that vast complex of facts that constitute the relationships of members within a given society. 

“Questioning and answering… At times you may feel that you have found the correct answer. I assure you that this is a total delusion on your part. You will never find the correct, absolute, and final answer. In my classroom there is always another question, another question to follow your answer.”

I have enormous respect for Pierre. He constantly duels with a classroom full of seasoned executives, manages to keep the upper hand, and forces us to think more broadly and deeply that we probably had before. For someone like me who had lost interest in the study of strategy, this sort of constant confrontation proved to be entirely effective. I have seen Pierre a couple of times on campus since the class ended, but I’ve found that it’s rather difficult to express thanks for shaking me up. Thank you, Professor Azoulay.

Allocentric thinking is continually stressed, especially within the context of game theory. Scott Stern, the other course instructor, is diligent in forcing executives to think less about their strategy from their own company’s point of view, and much more about their strategy from their competitors point of view. Scott constantly admonishes executives to find a strategic position that is attractive for your own company AND unattractive for competitors. He develops a theoretic framework called PARTS, which teaches executives how to engineer strategy. He builds the PARTS framework on allocentrism, and links it to game theory, Nash equilibrium, and a theory of commitments.

Scott does a particularly brilliant job of explaining his theories through memes like the Princess Bride.He moves with a frenetic energy that I swear creates a magnetic field in his wake. I was taught how to apply game theory to competitive strategy by watching the Princess Bride. One reaches an entirely new plane of geekdom when one watches the Princess Bride and can explain the plot in terms of a dominant strategy. An immunity to Iocane powder. Brilliant!

This course re-engaged me in thinking about how to shape both my business and the competitive segment within which it operators. Competitive Strategy have me a new set of integrated analytical tools and an entirely pragmatic view of the span of control that I, as a senior executive, can have in both building my own company’s strategy and shaping the general competitive landscape within which we operate.

At MIT, Clausewitz might come full circle with a new, Zen-like realization that perhaps strategy is tactics, tactics is logistics, logistics is strategy in the mind of a fully integrated executive.

-R.

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