Random Thoughts

it is indeed unfortunate that two of my posts are on strategy, a subject which i absolutely hate. today one of my friends scrapped me on orkut to ask for a book on "strategic management". he has joined his firm recently and is working on the strategy devision of the company. so, he wants to "brush up" his funda before starting any seriuos work. his request has forced me to think of two questions:

1. what is strategy, really ? is it some subject which one can learn in a textbook like finance or
mathematics, or is it just plain vanilla common sense ?
2. even if one assumes for a moment that strategy can be learnt by a textbook, what should be the characteristics of an ideal book ?

first let's talk about the first question. i seriously don't think that strategy can be learnt in a textbook. the logic is plain, and simple. strategy works on the same principles as a good portfolio selection in equity investment. suppose somebody is an avid investor and has been searching for ages to find an algorithm which insures maximum return while minimizing the risk. he finds it somehow, goes on to become very rich and soon starts bragging about it. now when too many people know about this, everybody starts to invest in the same portfolio. the result ? soon the returns on the portfolio dwindle, and it becomes unattractive (there have actually been some examples of this. French & Famma once reported that the return-risk ratio for the small-cap companies was frequently was frequently better than the blue chip companies. some time after their research paper was published, the phenomenon was found to have become extinct). strategy also suffers from the same curse. unless there is a monopoly, we can assume that there are enough numbers of firms working in an industry (a monopolist doesn't need a strategy, does it ?). there are several conditions that affect all the firms in the industry, since they pervade the working environment. in financial jargon, they are called "systematic" risk that the firms face. now if all the firms start thinking in the same way to deal with those problems, obviously all of them will make no progress. after all, if all the athletes in a 100 m race run at the same speed, nobody wins, and everybody loses. if a textbook exists, and all the firms employ blue-eyed MBAs who read those books, everybody will use the same principles. needless to say, such a textbook can't be effective for long.

now about the second question. even if i do assume for a moment that such a textbook exists, what should that book be? should they deal at a theoretical level without getting into the specifics, like porter's value chain or porter's five forces, or should they be specific to the industry which they are dealing with? i think neither of them will be optimal. the best way is to read the history of successful companies and take lessons from them. reading the autobiographies of their CEOs also is one good way. after all, who could have thought of cheap furtniture before IKEA ? and who could have thought that one day Intel will be known more for its processor than for its memory chips ? these are the radical decisions (or strategic inflexion points, as Intel ex-CEO Andrew Grove says in his book "only the paranoid survive") which one should look for, and learn from them. textbooks look good only in the cupboard of a marketing executive, not anywhere else.