In times of uncertainty and accelerated technological change, it becomes increasingly difficult for organizations to make decisions regarding their strategic direction.
Mack Institute Senior Fellow Sarah Kaplan and co-author Wanda Orlikowski recently published a fascinating study of how organizations confront uncertainty in their decision-making processes. They caution against relying too heavily on analysis-based predictions of the future, finding instead that crafting an effective strategy requires a much more narrative-based approach.
The study tracked the daily operations related to five technology strategy projects within CommCorp (a pseudonym), an optical technologies company, from April to December 2002. During this period, CommCorp had to adapt its strategy in the wake of the Internet bubble’s burst.
Kaplan and Orlikowski found that companies aiming to successfully implement innovative strategies, especially those that diverge sharply from the status quo, must relate these new strategies to the company’s traditional core values and strengths in what the study terms “strategic narratives.” Strategic narratives refer to how organizations combine varying interpretations of their past and present to construct a cohesive account of their trajectory into the future.
Savvy corporations recognize that their strategies are closely intertwined with their understanding of their historical priorities. Crucially, Kaplan and Orlikowski found that “the more work managers do to create novel strategic narratives, the more likely they are to explore alternatives that break with the status quo. In other words, to get to an alternative future, you have to create a story about the past that connects to it.” New strategies must make sense to key stakeholders, and the harder managers strive to resolve interpretive differences, the more innovative their strategies are likely to be.
What do Kaplan and Orlikowski’s findings mean for executives? They identify four lessons about crafting strategy:
- Making strategy is not about accurate forecasting.
- Achieving an innovative future is not about forgetting the past.
- Strategy making is not about getting the “right” narrative.
- Breakdowns in the strategy-making process are not failures but rather opportunities for learning and for reconfiguring the strategic narrative.
Although it is important for organizations to keep the past in mind, it is equally crucial to challenge it. Effective strategists integrate differing interpretations of the organization’s history and future; they also recognize that turbulent times offer a valuable opportunity: to radically re-imagine not only where the company has been, but where it might be going.
Sarah Kaplan is an associate professor of strategic management at the Rotman School of Management at the University of Toronto.
Wanda Orlikowski is the Alfred P. Sloan Professor of Management and a professor of information technologies and organization studies at the MIT Sloan School of Management.