Monday, November 30, 2009

Tic-Tac-Toe and Business Strategy

Business strategy is often likened to a game of chess: complex rules, practically infinite variations, many complex patterns, difficult to master... The complexity of chess can easily obscure the points about strategy, so let's use another game as a model for understanding the use of business strategy: Tic-Tac-Toe:

Business strategy is about moving swiftly and getting an advantageous position. In Tic-Tac-Toe, this is pretty straight forward: The first mover can choose the best position. In business, it is a bit more complicated. For example, a first mover may have to expend effort blazing a trail, selling a new concept to the market. A second mover can use the trail blazed by the first mover. when the time is right, the second mover can pounce, exploiting a weakness in the first mover's strategy.

Even if business strategy is more complex, the principle is the same: Move swiftly when the time comes, go for an advantageous position.

One important aspect that is often overlooked, is that this requires having both processes for strategy development, strategy deployment, and the training to use them.

I have written quite a lot about the advantage of speed. In a game of Tic-Tac-Toe, if you can make two moves while your opponent can make only one, you will win. Same thing in business.

There is no easy generic way to tell what the optimal length of a strategy cycle is, but you can easily determine the worst (except for not having a strategy cycle at all):

The worst possible strategy cycle length for your company is the same strategy cycle length your competitors use! This would be a year for most companies, because the strategy cycle is often tied to the budget cycle. (You might infer from that that a one year budget cycle is a bad thing. You would be right. from a strategic point of view, it is quite nutty.)

Usually, it is better to be faster than the competition, but not always. For example, Warren Buffet built his fortune by being slower than most of his competitors. Buffet spent his life identifying real signal in the stock market, while most people just react to random noise. There is an important lesson to be learned there.

All strategy games are games of interaction and isolation. You want your own forces to interact, while keeping opponent forces dispersed, unable to focus their power. In the game to the left, the X player has managed to focus his forces, while the O player did not.

In business, this means rallying your own forces with a unifying vision. It also means sowing discord among competitors, and competitors and their customers. It does not mean doing anything dishonorable or dishonest. You will need integrity and honesty in order to pursue your vision. Never compromise it.

In Tic-Tac-Toe, you can create situations where your opponent faces an impossible choice: Damned if you do, damned if you don't.

The same thing can be done in business. Business strategy literature is full of examples of how smart executives have put their competitors into situations like the one in the picture to the left.

However, there is another side to it: In business your own organization is so complicated that if you face a dilemma, it is very likely that your own organization created the problem, or at least contributed to creating it, in the first place.

We are so used to conflicts like these in business that one of our major problems is recognizing them as conflicts. We think of them just as the natural order of life. Consequently, even though most dilemmas can be solved, we don't. It does not even occur to us to try.

Personally, I like dilemmas. They are opportunities in disguise. Really! I rarely encounter business dilemmas that cannot be solved.

Here is one of my favorite approaches to strategy: Cheng/Ch'i (orthodox/unorthodox). Change the rules and play a different game than your competitors do. There are plenty of companies big and small who know how to do this. Most do it rarely, but some have incorporated it into their business models. Virgin Group and Apple are two of my favorite examples.

The idea is to start out with orthodox moves, enticing the competition to following a standard pattern, then use an unorthodox maneuver to hit from an unexpected direction. I provide several examples in Tempo!, my (work in progress) business strategy book.

Even a simple game like Tic-Tac-Toe has a strategy playbook: Go first if possible, get the center square first, occupy corners if you can. Business strategy is more complex, but the idea is the same: You can do a lot more if you know more about the rules governing the game. You can even change them.

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