Knowledge Strategy

Strategic Knowledge – What’s New is Old

13 May 2014  

I take pride in bringing the latest techniques and insights to my clients.  But it turns out the origins of what I do go back at least 2500 years.  I discovered this while reading Lawrence Freedman’s new sprawling history of all manners of strategy, called (fittingly) Strategy:  A History.Strategy cover

Professor Freedman traces the modern use of the term “strategy” back to the 19th century, when it was used by von Clausewitz and others to describe the application of empirical science and reason to the conduct of military campaigns.

Strategy = leadership

But the term “strategy” ultimately derives from Greece in the fifth century BC, when a military leader or strategos was expected to “lead from the front, fight with the best, and show total commitment.”

Thus strategy is, at its core, about leadership.  The leader, be it in military or business affairs, is the one (to quote leadership expert Robert Reiss) whose job it is to guide the group from HERE to THERE — however those start and end points are defined.

The leader’s information requirements

How does a leader do this? Freedman mentions the key role of strategike episteme — literally, strategic knowledge — consisting of stratagems, plans, maps, and so on.

Strategy is closely linked to the information or knowledge that serves as its foundation.  Defining what that information is, in specific actionable terms, is essential for strategic success — and the core of what I do for my clients.

Peter Drucker, whom many regard as a founder of modern management thought, addressed this in his 1995 Harvard Business Review article “The Information Executives Truly Need”.  Drucker differentiates executive information needs into two broad types:  (1) traditional accounting measures and (2) information needed for wealth creation.  He further differentiates the latter into information needed for tactics (2a) and information needed for strategy (2b).  (My numbering taxonomy.)

Outside the enterprise

For tactics, Drucker describes a range of information needed about the current business — financial ratios and other metrics we today generally call key performance indicators (KPIs).

For strategy, Drucker says executives need information about the business’ economic environment: markets, customers, and non-customers; technology in one’s own industry and others; worldwide finance; and the changing world economy. The environment, as he succinctly puts it, is “where the results are”.

Most key elements of strategic information are, in other words, outside the enterprise — in terms of both what they are “about” and where they typically “reside”.

The promising future

Drucker implies (consistent with Freedman) that these information needs are not new — but that only recently have we developed the technologies that allow us to fruitfully address them.  He concludes by saying that we have within reach “a new and radically different view of the meaning and purpose of information:  as a measurement on which to base future action rather than as a postmortem and a record of what has already happened.” (Emphasis mine.)

The Moneyball syndrome

Leading Indicators coverA more recent source, economic historian Zachary Karabell, points out in his insightful book Leading Indicators that while many executives today are aware that information about the outside and the future are needed, too often they settle for a limited set of “twentieth century indicators” that most everybody follows to some extent.  These include GDP growth, employment data, CPI, and gross measures of consumer sentiment.

Karabell rates these general metrics higher in their availability (i.e., practically ubiquitous) than in their relevance for decision making. Actionable identification of opportunities and threats to any given individual business usually lies at a level of granularity far more specific than these gross numbers can possibly reveal.

In other words, what we’re measuring doesn’t matter strategically — and, as a corollary, too often we’re not measuring what does matter.  I call this fairly common condition the “Moneyball syndrome.”

Game changer

The lesson of Moneyball is that of an entire industry (professional baseball) all following the same numbers, and how an under-capitalized disruptor (the 2002 Oakland A’s) redefined the terms of competition by using new metrics to more astutely assess the competitive environment.

Karabell suggests that essentially the same is true of many businesses today, due to their over-reliance on inappropriate metrics.  He goes so far as to say, “Companies should not use economic indicators to steer corporate strategy” due to their marginal connection to the true competitive conditions facing the business.

Proprietary strategic data maps

Karabell realizes, like Drucker before him, that we’ve now reached the point where technology enables breakthrough capabilities in this regard.  “Companies are better off developing their own proprietary indicators…The rise of Big Data means that all of us now have the ability to assemble our own data maps.”

Drucker concludes that, “Even big companies, in large part, will have to hire outsiders to help them.  To think through what the business needs requires somebody who knows and understands the highly specialized information field…Maybe the most popular provider of the outside-information system, especially for smaller enterprises, will be that ‘inside outsider,’ the independent consultant.”

That’s a pretty accurate description of what I and my colleagues do for our clients.

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