Strategy, Conscious Choice, and Rational Choice

A strategy is a set of choices that, when combined, cause a sustainable competitive advantage.

Conscious, reinforcing, choices, are powerful. That’s what you learned in B-school.

I’m far more pessimistic that strategic choices are generally conscious.

I’ll explain.

A set of deliberate choices, that constitute a strategy, might be:

Because we chose the same aircraft we save money on maintenance. Because we chose the same aircraft we save money on ticketing. Because we chose the same aircraft we compete exceptionally well on specific flight pairs. Because we chose a large set of direct point-to-point flights without going through hubs, we save money on baggage transfer. Because we simplify baggage, we can turn planes around more reliably. Because we turn planes around more reliably, we keep more airplanes in the air, longer. Because we save money we compete more efficiently against our competition.

Conscious choices designed to create reinforcing variables are pretty powerful.

That was a summary of what Porter said about Southwest Airlines.

Conscious Choice

I want to believe that strategic choices are made consciously and, by extension, rationally.

It would be so much more pleasant if that were the case.

But that’s just not the case.

Unconscious choices are made all the time. It constitutes 80% of human-hours some firms, and 20% in others. Inducing comma, or infantilization, is the surest way to cause predictable reproducibility in roles that require no talent, judgement, or creative problem solving.

The translation of strategy into unconscious choice is the stuff of checklist production and policy manifestation. It’s the walking dead. You can make a pretty effective hoard with just a few activities.

The translation of business strategy into action for the conscious, for the living, is quite a bit harder. It has to be said in multiple ways for different audiences. It has to be clear and clean enough to translate into tactics. And it has to be communicated in a persuasive (believable, credible, internally consistent) way. It’s the stuff of effective leadership.

It’s really important that the people listening remember how they feel, and remember some of what was said.

Rational Choice

Many models of strategic choice and decision making make massive assumptions, in the vein of “Assume a manager that knows all arbitrage positions in a market”. They tend to assume that all alternatives are known and ranked in order of preference. And, it’s from that basis that they build models of rational choice.

Models of strategic decision making predicated on rational choice are almost certainly doomed to make very poor predictions about strategic outcomes.

But those models are very elegant and internally consistent.

They’re just not predictive.

How to make better strategy

Strategy isn’t just about getting dissatisfied with the status quo, doing some basic learning, and stating that some subset of tactics are ‘best of breed’. March once pointed out that the depth of learning is typically proportional to the degree of dissatisfaction with the status quo. You’re far more likely to stop searching after you discover the first mutt. (And in some cases, going with a healthy mixed dog is better than going with a purebred.)

It’s not enough to express a dream. A dream isn’t strategy.

A dream is a product of unconsciousness.

The best strategies I can imagine enumerate some of the alternatives that were considered and state, very clearly, why a call has been made. The best strategic documents I have ever read contained alternatives set in neatly accessible, personable stories. They speak to a lot of people, and really lend a lot of intuition about what we’re going to do and why.

The best strategies also bring elements and realities from outside the firm, and bring them in.

The best strategies are done consciously.