Michael Raynor, co-author of of The Innovator’s Solution with Clayton Christiansen, has written a new book entitled The Strategy Paradox: When Committing to Success Leads to Failure and What To Do About It. The premise of this book is an intriguing one: making a commitment to an innovative, risky strategy, which carries with it the potential of great success and excellent return on investment, is just as likely to produce a spectacular failure.
Michael Raynor, co-author of of The Innovator’s Solution with Clayton Christiansen, has written a new book entitled The Strategy Paradox: When Committing to Success Leads to Failure and What To Do About It. The premise of this book is an intriguing one: making a commitment to an innovative, risky strategy, which carries with it the potential of great success and excellent return on investment, is just as likely to produce a spectacular failure.
“Most strategies are based on specific beliefs about the future. Unfortunately, the future is deeply unpredictable. Worse, the requirements of breakthrough success demand implementing strategy in ways that make it impossible to adapt should the future not turn out as expected. The result is the Strategy Paradox: strategies with the greatest possibility of success also have the greatest possibility of failure. Resolving this paradox requires a new way of thinking about strategy and uncertainty.”
In other words, the kind of breakthrough strategy that a company needs to in order to competitively differentiate itself and offer outstanding value to customers requires a great deal of commitment and investment. Once a company has a “sunk investment” in a certain technology, business model or outlook toward to the future of its customers and the industry, it is deeply committed to that course. This usually leaves the company unable to adapt to changing circumstances. As a result, these firms tend to be either wildly successful (If they guessed correctly), or they fail miserably (if they were wrong). There doesn’t seem to be much of a middle ground. And luck plays a bigger factor than anyone may have realized in the success of the high-flying organizations that we admire today.
Interestingly enough, Raynor suggests that much of the research on successful companies may be fundamentally flawed: “Most studies of the determinants of success have based their conclusions upon comparisons of the exceptional with the mediocre… Because these studies systematically seek out successful companies, each will necessarily find those that in the past have made the right commitments. And because the comparison companies are always firms that have performed less well, but not failed completely, they will invariably be firms that have avoided high-risk, high-return strategies. By examining primarily those companies that have guessed right and comparing them with those that have avoided guessing, what is largely missed is the critical importance of managing uncertainty.”
At the book’s website, you can download chapter one as a PDF file. I highly recommend it. I can’t wait to pick up a copy of this book and dig deeper into Raynor’s findings.