(not) the formula for business success

There are a number of really great books about business strategy and the challenges of managment for high tech company (e.g. Crossing the Chasm, Innovator’s Dilemma, etc). What makes them great is that they provide a theory of business — they provide an analytical framework for understanding where your business is and a set of principles for guiding your future actions.

The problem with them is that people misunderstand the role of theory in business: they treat these theories like they are a set of rules — a formula for success — often at the encouragement of the authors of those books.

There is no substitute for first hand knowledge of your market and a detailed understanding of your business; no business strategy can truely be successful unless it has been informed and shaped by those factors. Theory should play a supporting role in the formation of strategy, not a determining one.

In fact, the misuse of theory is quite rampant. Beyond the books, there are folk theories about everything — why is Microsoft/Oracle/etc so successful, what makes open source so popular, etc. And it seems many people think that if they could simply repeat the formula, their business will be a success too (e.g. Sun seems to have a terminal case of Microsoft Envy).

The thing is, it wasn’t the formula that made Microsoft so successful, it was seeing that the time was right and that company was in the right position to play out a strategy like they did.

This really became clear to me when I was reading this summary of von Clausewitz, a 19th century military theorist. He was working in the time of the scientific revolution; there was a wide spread belief that it would soon be possible to reduce many fields to a set of governing rules. One school of military thought believed war would soon be reduced to a set of rules for maneuvering troops to achieve advantage.

Clausewitz opposed this school of thought arguing that theory existed not to proscribe behavior but merely to inform the thought of the general in battle. Great strategy came from great generals who had coup d’ oeil — the ability to read the state of battle in progress and intuitively see the opportunities it offered. Theory didn’t exist to be applied dogmatically, but simply to help develop the general’s coup d’oeil.

Do you think you could learn to be a chess grandmaster by rote learning of a collection of class openings and end games? Of course not — the number of possible chess games is far too large for that to be feasible as a chess playing technique. When they psychologists study chess grandmasters, to see what allows them to play such a computationally intractable game so well, one thing that stands out is their ability to very quickly read a board and understand it as a set of strategic groupings.

Why should business be different?