Strategy as Structured Chaos: Competing on the Edge
The chapter will now consider how strategy is formulated and implemented on the edge of chaos based on work by Brown and Eisenhardt (1998). Although Brown and Eisenhardt’s book, Competing on the Edge: Strategy as Structured Chaos, was written eighteen years ago, it is now highly relevant to the theories of complexity science and the modern ICT ecosystem. A unique feature of Brown and Eisenhardt’s (1998) publication was their statement that the strategies adopted by most corporations were in fact defensive rather than an offensive. In fast-moving, high velocity environments, Brown and Eisenhardt (1998: 4) stated that firms’ reactions to change and their anticipation of change were both defensive in nature (although the latter was more opportunistic). This perspective is underpinned by the ‘strategy content approach’ that was discussed and analysed in Chapter 2 of the book and is the embodiment of the rational approach to strategy taught in business schools. The rational approach to strategy entails an analysis of the external environment (at a macro and micro level) followed by an evaluation of the firm’s internal resources and capabilities and a decision is made as to whether a strategic fit has been achieved between the external and internal variables. If not, then strategic drift (Johnson et al. 2011) is deemed to have occurred and this is likely to result in the failure of the company if it is allowed to continue without some form of turnaround strategy.
This assumes that the organisation is unable to influence the external environmental conditions to any significant degree and forces the organisation to adopt a defensive strategy (Brown and Eisenhardt 1998). The defensive strategy is based on screening the environment to identify changes and trends and to then position the firm to deal with these developments. It ignores the potential for a firm to mount an aggressive strategy based on the launch of a radical innovation which either shapes the environment or creates a new set of external conditions. Meanwhile, the resource-based view (RBV) of strategy (Grant 2016), adopts a highly introspective view which focuses at a narrow firm level and largely ignores any potential impact on external conditions.
According to Brown and Eisenhardt (1998: 4), firms that launched offensive strategies, were capable of creating change and new environments to which others had to react. These firms took up leadership positions by either launching a new market (Apple in personal computers and Microsoft in software), by raising the industry standard of service (the Google search engine), by redefining customer expectations (the Amazon and Alibaba e-commerce platforms) or by increasing the pace of industry product life cycles (Intel and Moore’s Law). At the very extreme, this meant changing the rules of the game and becoming the environment for others (the PC Wintel standard). Brown and Eisenhardt’s (1998: 4) references to the need for firms to constantly reshape their competitive advantage (as the marketplace unpredictably and rapidly shifted) was also in line with D’Aveni’s (1994) hyper-competition and McGrath’s (2013) transient competitive advantage discussed in Chapter 1 and Chapter 2.
Brown and Eisenhardt (1998: 4) also believed that the strategy formulation and execution process in complex and chaotic environments was different. They suggested that strategic choice and implementation (where does the organisation want to go and how does it get their) were inseparable. This was largely because organisations in chaotic and complex environments would not make any forecasts but would follow a semi-coherent strategic direction.
Where high innovation and uncertain outcomes are concerned, the semi-coherent strategic direction can be compared to the vision statements mentioned in Chapter 2 which provided strategic direction in the absence of any deliberate strategy (Collins and Porras 1996; Ismail et al. 2014). The seamless combination of strategic choice and strategy implementation also concurs with Sarasvathy’s (2001) effectuation approach to strategy, Fixson and Rao’s Creation Logic (2011) and Mintzberg and Waters’ (1985) emergent strategy where action preceded planning (Chapter 1).
Brown and Eisenhardt (1998: 8) also identified that it was important for the organisation to be able to change continuously (the performance driver) and to continually reinvent (the success driver). This capability was based on three core competencies which they referred to as the ‘edge of chaos’, the ‘edge of time’ and ‘time pacing’.
The edge of chaos was described earlier in the chapter as a state between order and chaos that lay in the intermediate zone where organisations never quite settled into a stable equilibrium but never fell apart. This is where systems were at their most vibrant and innovative. The second core concept was the edge of time. Change required an organisation to think about multiple time horizons. It required a reliance on past experience whilst still focusing on the present situation as well as looking ahead to the future. Theories of technological disruption are relevant here. For example, technology firms that become platform leaders and set new industry standards (Gawer and Cusumano 2002) must also be able to manage platform shifts when new ecosystems emerge that render their own competitive advantage obsolete. Nokia failed to manage the shift in technology when its own mobile platform was disrupted by the Apple iPhone. Meanwhile, Microsoft and Intel are having to move on to the new mobile computing platform created by Apple that has undermined the PC ecosystem that both firms have dominated since the 1980s. This means harvesting the returns from the existing platform whilst simultaneously moving across to another ecosystem and maximising future returns. Both Google and Facebook have managed to migrate from the desktop ecosystem to the mobile platform by establishing a strong mobile presence through software to defend their search and social network advantages respectively. Google have developed the open source Android mobile software platform and Facebook have developed their own mobile app as well as acquiring a number of high growth chat apps (i.e. Instagram and WhatsApp).
Brown and Eisenhardt’s (1998) third concept was time pacing. Time pacing meant launching a new product every nine months (or longer) rather than whenever a competitive response was needed; entering a new market every third quarter (or longer), rather than whenever a promising opportunity arose and refreshing or repositioning a brand every three years rather than waiting reactively for market signals to indicate that the brand was stale or eroded. Time pacing was important because it created an internal rhythm that drove the momentum for change (Brown and Eisenhardt 1998). Change was, therefore, the norm and not the exception. Platform leaders such as Amazon, Google, Facebook and Alibaba are constantly upgrading their product portfolios either through internal organic innovation or as the result of external acquisitions.
Over the years, Intel, however, have been the most outstanding exponent of the concept of time-pacing. Due to Moore’s Law (Moore 1965) and the doubling of computer capacity every two years, Intel has created an inexorable flow of new products often moving ahead of the computing (ICT) ecosystem. In 1991, this happened with the bus architecture (the input-output channel of a computer) and later on with the adapter cards (the circuit board that connects a PC to a network). Intel was, therefore, forced to build up the platform with complementary products (Gawer and Cusumano
2002). In the latter case (the adapter cards) slow and expensive access to networks was potentially slowing the sales of their high performance microprocessors. Intel, therefore, moved into the network adapter card market (dominated by 3Com) in 1991. By the mid-nineteen nineties, Intel had taken a third of the market and in 1997 it passed on low manufacturing costs to customers by slashing the prices of their network adapter cards by 40 percent and created demand for cheap, fast PC access to networks and for Intel microprocessors.
Rhythm, therefore, creates the momentum of time pacing but if the tempo of the rhythm is too fast then managers may not be able to get too far ahead of the market i.e. products might be changed too frequently for customers to keep up. However, if the pace is too slow then companies become laggards in the industry and entropy sets in.
Brown and Eisenhardt (1998: 129) also referred to the technique of ‘probing not planning’. This involved preparing for the future by practicing ‘What if.....?’ future scenario generation techniques. This is designed to generate new thoughts relating to possible future situations that the organisation might face. Brown and Eisenhardt (1998: 130) called this the ‘experimentation edge’. For example, if managers focus their attention too much on the present, they end up chaotically reacting to the moves that others make.
Alternatively, if they focus too much on the future, then they tend to become locked into a particular future, they lose flexibility and, therefore, end up bound by the rigidity of a planned future. In contrast, experimentation relies on small, fast and cheap probes to create a more complex and dynamic strategy for the future than either planning or reacting can provide. Experimentation attempts to gain insights into the future that may unfold without losing flexibility to react to the future that does unfold.
Too much planning, referred to as the ‘foresight trap’, is a problem in hyper-competitive markets (D’Aveni 1994) such as ICT. Quickly shifting technologies, changing customer demands and aggressive moves by competitors all make substantial planning a pointless activity. The types of firm that were most likely to slip into the foresight trap according to Brown and Eisenhardt (1998: 137) were from slow moving industries. Within the ICT ecosystem, the telecoms sector (cluster) might be regarded as being comparatively slower moving than the other clusters with which it collaborates. A good example of this occurred in 1996 when Motorola overplanned and selected the CDMA (Code Division Multiple Access) standard in preference over GSM (Global System for Mobile Communications) in wireless communication technology. This turned out to be the wrong decision and resulted in Motorola being marginalised.
Meanwhile, too much reaction, referred to as the ‘no sight trap’, occurs when there is no strategy for the future and managers simply respond to what happens around them. There is a tendency for this to happen when a firm faces intense competition. Managers believe that the marketplace is changing too quickly or unexpectedly for there to be a worthwhile strategy for the future. An illustration of this lack of foresight trap is provided by AT&T’s inertia in responding to the United States Telecommunications Act in 1996 which ended the firm’s earlier monopoly. AT&T had not foreseen the likely impact of hordes of new competitors entering the market (the Baby Bells). Moreover, it had not identified the need to offer local calling in addition to its long distance service and it had also overlooked new competitors such as electric utilities and cable operators. AT&T did not have a new vision for the firm in the post-deregulated market nor was there any strategy aimed at exploiting the advances being made in Internet communications (Crandall 2005).
With the no-sight trap, reactive mode is a catch-up not a winning strategy. Firm’s must navigate between today’s reacting and tomorrow’s planning by experimenting. This is referred to as ‘experimentation at the edge of chaos’ (Brown and Eisenhardt 1998: 130). Firms undertake low cost probes that provide insight about the future while maintaining strategic flexibility. The result is a quicker reaction to market shifts, better anticipation of the future and more opportunities for reinvention and growth. Probes can consist of experimental products to test new concepts and the exploitation of strategic alliances. This is strongly evident in the ICT sector where Google has been experimenting with new products such as Google glass (recently withdrawn), robotics and autonomous vehicles. Google has also formed a strategic alliance with Samsung where the Korean company has agreed to a ten year licensing agreement relating to patents for the Android mobile software platform. This removed any potential disruption that might have been caused by litigation and allowed both companies to focus instead on innovation.
Experimentation is an effective way of ‘learning’ [about the future] ‘by doing’. Small losses from experimental products or the failed predictions of futurists are a very effective vehicle for learning. The cheaper and smaller the probes, the more probes that can be afforded (Khanna et al. 2016). This is why Internet platform companies such as Google,
Facebook, Microsoft and Alibaba experiment with various online products which they measure in real-time before deciding whether to adopt the new ideas or not (Maxwell 2007). These probes are, therefore, useful because they can be used to create options for the future. Options are particularly useful because they give strategists more possible responses. Probes are also useful for defensive reasons because they lower the probability of being blindsided by unanticipated futures. By probing the competitive landscape managers are more likely to uncover threats such as new technologies or competitors.