Rating 8/10

See book on Amazon.

Art of Action book cover on the LBS website

Summary table of contents

Click on a link to jump over to a desired section.

Introduction

Part 1: Uncertainty leading to organization complexity

Part 2: Why look for inspiration from the military history?

Part 3: Leadership with the “Auftragstaktik"

Part 4: A short history tour of Auftragstaktik

Part 5: Back to the world of business

Part 6: Execution

Part 7: Building the organization

Part 8: Strategy, operations, tactics

Conclusion

Introduction

Welcome to the best summary of the book you'll find online. Here Bungay studies and applies historical military principles of leadership, strategy and management to challenges of modern organizations in an eye-opening way.

Just like the book itself, the summary can feel quite expansive at times, so feel free to use the table of contents as a way to skim through the content. However, if you take the time and effort to study the book more closely, I guarantee it will pay dividends across your whole professional life.

Majority of the text below is cited directly, and that is why I highly recommend you read the full book if you can.

My brief thoughts from reading the book

You're guaranteed to have a lot of "a-ha!" moments as you read, but the main thesis of the book boils down to a controversial perspective when applied to the modern day, which I've personally found to be rather unpopular among the vast majority of people.

Many think that military principles and learnings should not have any bearing whatsoever on our civil lives, nor the management of contemporary organizations."We are past this way of leading..." they say, and "You cannot manage today's people in this manner..." keeps getting claimed by people whom I've talked with.

So in essence, this book is the best effort so far that I’ve found to help correct the misunderstandings of what leadership under factors of uncertainty is truly about, and where the competitive pressures of "opposing wills" play out on a constant basis. Stephen explains excellently why these military principles are an effective way to think of the right ways to lead, also laying out well the core reasons of why you should care about any of this in the first place.

Meanwhile, I know that principles of Auftragstaktik and "mission command" are used for example by the Finnish military, where I took a year practicing these topics training a reserve platoon, as well as these principles having their place in the modern-day official NATO doctrine.

Finally, this book makes a strong case for hiring people not only through a rigorous selection process and developing them thereafter as one of the core aims of an organization, but makes a point for giving them autonomy and making the intent of your organization clear, unlocking the full potential of your company. Your organization should ideally serve as a platform for gifted, talented and ambitious people to build their, and consecutively your success in a sustainable and ongoing manner, as it all eventually comes down to people whom you work with in being an exponential value driver of any organization.

Part 1: Uncertainty leads to organization complexity

Organizations operate in a complex and uncertain environment. Trying to cope with complexity, organizations grow complex as well. Things become opaque, creating internal uncertainty that adds up to the uncertainty on the outside. Faced with uncertainty, people search for more information; faced with complexity, they do more analysis.

Meetings proliferate and decisions are delayed. People on the front lines become frustrated at the lack of the decisions they need someone to make, and people at the top become frustrated at the apparent lack of action, although the level of activity is high.

More initiatives are launched, increasing the level of activity. The psychological effect is increased confusion. There is lots to do, but what will have the greatest effect and who should do it?

Accountability becomes more diffuse, so controls proliferate. This slows things down and restricts the scope for front-line decision making. Attempting to increase clarity, actions are specified in more detail. The emotional effect is an increase in cynicism and frustration.

Trust erodes. The cycle is toxic.

Execution versus mere activity

Generating activity is not a problem; in fact, it is easy. The fact that it is easy makes the real problem harder to solve. The problem is getting the right things done, namely the things that matter, the things that will have an impact, the things a company is trying to achieve to ensure success.

A high volume of activity often disguises a lack of effective action. We can mistake quantity for quality and then add to it, which merely makes things worse.

At its most simple, executing strategy is about planning what to do to achieve certain outcomes and making sure that the actions we have planned are carried out until the desired outcomes are achieved.

Predictable versus an unpredictable environment

In a stable and predictable environment, it is possible to make quite good plans by gathering and analyzing information. We can learn enough about the outside world and our position in it to set some objectives.

We know enough about the effects any actions will have to be able to work out what to do to achieve the objectives. We can then use a mixture of supervision, controls, and incentives to coerce, persuade, or cajole people into doing what we want. We can measure the results until the outcomes we want are achieved.

We can make plans, take actions, and achieve outcomes in a linear sequence with some reliability. If we are assiduous enough, pay attention to detail, and exercise rigorous control, the sequence will be seamless.

In an unpredictable environment, this approach quickly falters.

The longer and more rigorously we persist with it, the more quickly and completely things will break down. The environment we are in creates gaps between plans, actions, and outcomes:

  • The gap between plans and outcomes concerns knowledge: It is the difference between what we would like to know and what we actually know. It means that we cannot create perfect plans.
  • The gap between plans and actions concerns alignment: It is the difference between what we would like people to do and what they actually do.
  • The gap between actions and outcomes concerns effects: It is the difference between what we hope our actions will achieve and what they actually achieve.

We can never fully predict how the environment will react to what we do. It means that we cannot know in advance exactly what outcomes the actions of our organization are going to create.

Although it is not common to talk about these three gaps, it is common enough to confront them. It is also common enough to react in ways that make intuitive sense.

  • Faced with a lack of knowledge, it seems logical to seek more detailed information.
  • Faced with a problem of alignment, it feels natural to issue more detailed instructions.
  • And faced with disappointment in the effects being achieved, it is quite understandable to impose more detailed controls.

Unfortunately, these reactions do not solve the problem. In fact, they make it worse.

Three principles for ensuring alignment

Introduction to principles that help address alignment gaps in a complex organization and lead with intent.

1. Decide on what really matters

You cannot create perfect plans, so do not attempt to do so. Do not plan beyond the circumstances you can foresee. Instead, use the knowledge which is accessible to you to work out the outcomes you really want the organization to achieve. Formulate your strategy as an intent rather than a plan.

2. Get the message across

Having worked out what matters most now, pass the message on to others and give them responsibility for carrying out their part in the plan. Keep it simple. Don’t tell people what to do and how to do it. Instead, be as clear as you can about your intentions. Say what you want people to achieve and, above all, tell them why. Then ask them to tell you what they are going to do as a result.

3. Give people space and support

Do not try to predict the effects your actions will have, because you can’t. Instead, encourage people to adapt their actions to realize the overall intention as they observe what is actually happening. Give them boundaries which are broad enough to take decisions for themselves and act on them.

Part 2: Why look for inspiration from the military history?

One benefit of moving far away in time and looking at the military rather than the business domain is to make it easier to spot the essentials.

If we can identify some principles, we can then apply them in our own specific context.

The environment faced by the military made the problem of strategy execution acute in the nineteenth century. In business the problem has only recently become similarly severe. As a result, the military has built up more experience of how to deal with the issues than we have in business. That experience is well documented and accessible. It is ours for the taking. We may find that the farther back we look, the farther forward we can see.

The word “strategy” comes from the Greek strategos (στρατηγόζ), a military commander.

But of course, business is not war. To learn from military experience, we must adopt the right perspective. We are seeking to define the principles which enable large organizations to realize their goals and gain competitive advantage in a complex, uncertain, and fast-changing environment.

The following is a description of the nature of combat from an academic thesis about the nature of military thought:

  • Combat is an interaction between human organizations. It is adversarial, highly dynamic, complex, and lethal. It is grounded in individual and collective human behavior and conducted between organizations that are themselves complex. It is not determined, hence uncertain, and evolutionary. Critically, and to an extent in a way which we currently overlook, combat is fundamentally a human activity.

Compare that passage with this one which is characterized by Bungay (author):

  • Business is an interaction between human organizations. It is competitive, highly dynamic, complex, and risky. It is grounded in individual and collective human behavior and conducted between organizations that are themselves complex. It is not determined, hence uncertain, and evolutionary. Critically, and to an extent in a way which we currently overlook, business is fundamentally a human activity.

The concept of friction and its application to business

Clausewitz observed that armies find executing strategy difficult and developed the concept of friction to explain why.

Friction manifests itself when human beings with independent wills try to achieve a collective purpose in a fast-changing, complex environment where the future is fundamentally unpredictable. Friction is a universal phenomenon ultimately grounded in the basic fact of human finitude.

Its universality means that it applies in some degree to all organizational life, including business. It also means that we can never completely escape it. Our finite nature means that we have limited knowledge, due to things we could know but happen not to (because we do not have perfect information) and things we could not know even in principle (such as unpredictable future events).

It also means that we are independent agents. When we engage in a collective enterprise, we therefore face the problem of communicating with each other and aligning our individual wills. While we cannot become God, we can deal with the more tractable implications of our finitude. The first step is to recognize it.

Internal friction is exacerbated by the fact that in business as in war, we are operating in a nonlinear, semi-chaotic environment in which our endeavors will collide and possibly clash with the actions of other independent wills (customers, suppliers, competitors, regulators, lobbyists, and so on).

Friction and the three gaps

The internal and external worlds are in constant contact and the effects of our actions are the result of their reciprocal interaction. Friction gives rise to three gaps:

  • the knowledge gap
  • the alignment gap, and
  • the effects gap.

To execute effectively, we must address all three.

Our instinctive reaction to the three gaps is to demand more detail. We gather more data to craft more detailed plans, issue more detailed instructions, and exercise more detailed control. This not only fails to solve the problem, but it also usually makes it worse.

We need to think about the problem differently and adopt a systemic approach to solving it.

Stephen (author) finds the concept of “friction” as the defining characteristic of the environment of war, which he argues is also the defining characteristic of contemporary business that makes executing strategy so difficult. Friction makes doing simple things difficult and difficult things impossible.

Friction creates gaps in alignment. The concept of friction is entirely consistent with systems thinking and chaos theory, but it is more useful to managers because it describes how working in a complex adaptive system is experienced. Its elements can be seen and felt, so we can more easily work out how to deal with them. Each gap in alignment (described by Stephen in a diagram) raises specific issues and requires us to take different steps to close it.

Clausewitz (Carl von Clausewitz, a Prussian general) believed that friction was as inherent to war as it is to mechanical engineering and could therefore never be eliminated but only mitigated. Secondly, he believed that studying march tables and the like was not a fruitful means of mitigation. In fact, he came to think that friction had to be worked with.

Friction provided opportunities and could be used by a general just as much as it could be used by an engineer. The first thing was to recognize its existence. The second thing was to understand its nature. That was and remains more difficult.

At another level, Clausewitz could be the first person in history to have had real insight into a fundamental factor governing organizational endeavor of any kind. No engineer would dream of designing an engine without considering the effects of mechanical friction.

If Clausewitz is right, no one should develop a strategy without considering the effects of organizational friction. Yet we continue to be surprised and frustrated when it manifests itself. We tend to think everything has gone wrong when in fact everything has gone normally.

The existence of friction is why armies need officers and businesses need managers. Anticipating and dealing with it form the core of managerial work. Recognizing that is liberating in upon itself.

If we are to deal with friction, we need to tease out its fundamental elements to distinguish them from specific examples and do so in such a way that we can then work out how to address them in practice.

To help us to do this, we are fortunate in being able to follow Clausewitz’s thought processes over time, thanks to scholars who have examined the genesis of his concept of friction. This enables us to think along with him.

Sources of friction

In April 1812, Clausewitz wrote a letter to his pupil, the crown prince, listing eight sources of friction:

  1. Insufficient knowledge of the enemy
  2. Rumors (information gained by remote observation or spies)
  3. Uncertainty about one’s own strength and position
  4. The uncertainties that cause friendly troops to exaggerate their own difficulties
  5. Differences between expectations and reality
  6. The fact that one’s own army is never as strong as it appears on paper
  7. The difficulties in keeping an army supplied
  8. The tendency to change or abandon well-thought-out plans when confronted with the vivid physical images and perceptions of the battlefield

We experience friction because of our cognitive limits as human beings. We have limited knowledge about the present and the future is fundamentally unknowable.

Because war involves a struggle between two opposed wills, the outcome of any action taken by one party is at least in part dependent on the actions of the other. The amount of information each needs to take decisions is therefore in principle infinite, and is also in principle only partially accessible, as it involves an independent agent: the enemy.

Even if near-perfect information were accessible, it would be open to different interpretations, affected by the psychological states of those interpreting it, their interests, and emotions, and all heightened by the exposure to danger, the resulting stress, and the physical exertion inherent in war.

The more protagonists there are, the more interpretations are likely, and the harder it is to create a uniform view.

Importance of clarity

Gathering and processing more information costs money and time. It is driven by a desire for certainty, a quest which can never be satisfied. Time passes and decision making slows down.

Providing more detail is a natural response to a demand for clarity. But clarity and detail are not the same thing at all. The pursuit of detail increases noise and so makes it less clear what really matters. Details change quickly, so the more details we put in our plans the less robust they will be.

Part 3: Leadership with the “Auftragstaktik”

With darkness all around you, you must develop a feeling for what is right, often based on little more than guesswork, and issue orders in the knowledge that their execution will be hindered by all manner of random accidents and unpredictable obstacles.

In this fog of uncertainty, the one thing that must be certain is your own decision… the surest way of achieving your goal is through the single-minded pursuit of simple actions.

To accomplish that single-mindedness, orders must be passed down “to the last man.” The army must be organized so that it is made up of units capable of carrying out unified action down to the lowest level.

Chain of command

The chain of command and the communications process should ensure that instructions can be passed on. But the chain of command can get disrupted, and some tasks can only be carried out by mixed units put together for the purpose.

So, a clear chain of command is not enough, nor can processes dominate people. At all levels, people must remain in charge.

There are numerous situations in which an officer must act on his own judgment. For an officer to wait for orders at times when none can be given would be quite absurd. But as a rule, it is when he acts in line with the will of his superior that he can most effectively play his part in the whole scheme of things.

Specifying too much detail shakes confidence and creates uncertainty if things do not turn out as anticipated. Going into too much detail makes a senior commander a hostage to fortune, because in a rapidly changing environment, the greater the level of detail, the less likely it is to fit the actual situation.

It also creates uncertainty about what really matters. Far from overcoming it, a mass of instructions creates more friction in the form of noise and confuses subordinates because the situation may demand one thing and the instructions say another.

A leader who believes that he can make a positive difference through continual personal interventions is usually deluding himself. He thereby takes over things other people are supposed to be doing, effectively dispensing with their efforts, and multiplies his own tasks to such an extent that he can no longer carry them all out.

The demands made on a senior commander are severe enough as it is. It is far more important that the person at the top retains a clear picture of the overall situation than whether something detailed is done this way or that.

The higher the level of command, the shorter and more general the orders should be. The next level down should add whatever further specification it feels to be necessary, and the details of execution are left to verbal instructions or perhaps a word of command.

This ensures that everyone retains freedom of movement and decision within the bounds of their authority. It is vital that subordinates fully understand the purpose of the order, so that they can carry on trying to achieve it when circumstances demand that they act other than they were ordered to do.

Addressing the three gaps with Auftragstaktik

To close the knowledge gap, one needs to plan only what can be planned, the need for judgment and timely decision making based on what one can ascertain, and the acceptance of uncertainty.

A decision maker will of course seek to gather whatever relevant information they can in the time available. However, some residual uncertainty will always remain. Rather than seeking to fill the gap completely by gathering more data, von Moltke (a Prussian field marshal) suggests adjusting the scope of plans to the available knowledge and using it to identify the essentials.

Bi-directional information flow

On the alignment gap, he recommends a cascade process with each level adding something to the one above, but all united by an understanding of the intentions of the higher levels.

Plans should be appropriate to their level: the lower the level, the more specific and detailed they should be. Each level will know less about the overall context and more about the specific situation than the level above.

So, the higher level should tell the lower level what it needs to know about the situation of the organization as a whole, the overall purpose, the immediate intention of the higher level, the specific role the unit is to play and the roles of other units around it, the freedoms it has, and any constraints it has to observe. That is all it needs to know.

With this knowledge of what to achieve and why, it should itself decide about how to achieve it. It will have more accurate and more up-to-date information about the situation it is facing and will therefore know best what specific actions to take.

By exercising self-restraint in telling its subordinate unit only what it needs to know, the higher-level unit clears space within which the subordinate is free to take decisions and act.

Autonomy and alignment

On the effects gap, he encourages the use of individual initiative within boundaries and requires junior people to depart from the letter of their instructions if the situation demands it to fulfill the intent. Rather than tightening control, he suggests that so long as the intentions of higher levels are made clear, individual initiative can be relied on to adjust actions according to the situation. The imposed discipline of controls and sanctions is replaced by the self-discipline of responsibility.

There should be no fear of punishment if a calculated risk fails to pay off. Sins of omission should be regarded as far more serious than sins of commission.

Von Moltke’s insight is that there is no choice to make. Far from it, he demands high autonomy and high alignment at one and the same time. He breaks the compromise. He realizes quite simply that the more alignment you have, the more autonomy you can grant. The one enables the other.

The insight is that alignment needs to be achieved around intent, and autonomy should be granted around actions. Intent is expressed in terms of what to achieve and why. Autonomy concerns the actions taken to realize the intent; in other words, about what to do and how.

Resulting adaptability and self-reliance

Being able to adapt to circumstances, the organization will tend to make corrective decisions while executing, even if the overall plan is flawed. That may not guarantee a great strategy, but it does make it unlikely that the organization would career headlong into disaster, as the Prussian Army had in 1806.

By building this sort of capability, the risks of a flawed strategy have been mitigated because the intelligence of the whole organization has been applied to determining how the strategy unfolds, and that process has been so extended over time that it is for all practical purposes continuous.

He has in effect turned strategy development and strategy execution into a distinction without a difference. The corollary is that von Moltke did not have to wait to develop a perfect plan. He could go with one that was 70 percent right, because the organization would deal with the other 30 percent.

He did not need to know everything, he simply needed to be directionally correct.

Part 4: A short history tour of Auftragstaktik

The moral and emotional basis of Auftragstaktik was not fear, but respect and trust. If every officer had the responsibility to exercise thinking obedience, they also had the responsibility to give clear direction.

Auftragstaktik recognizes that battle quickly becomes chaotic. It emphasizes independence of thought and action, stating that “a failure to act or a delay is a more serious fault than making a mistake in the choice of means.”

In the 1869 guidance von Moltke had made the distinction between an order (Befehl) and a directive (Direktive or Weisung). This entered general use.

In 1877, General Meckel wrote that a directive had two parts. The first was a description of the general situation and the commander’s overall intention; the second was the specific task. Meckel stressed the need for clarity: “Experience suggests,” he wrote, “that every order which can be misunderstood will be.”

  1. The intention should convey absolute clarity of purpose by focusing on the essentials and leaving out everything else.
  2. The task should not be specified in too much detail. Above all, the senior commander was not to tell his subordinate how he was to accomplish his task, as he would if were to issue an order.

The first part of the directive was to give the subordinate freedom to act within the boundaries set by the overall intention. The intention was binding; the task was not. A German officer’s prime duty was to reason why.

Every unit was to have its own clearly defined area of responsibility, and the freedom of unit commanders extended to a choice of form as well as means, which depended on specific circumstances. The responsibility of every officer was to exploit their given situation to the benefit of the whole.

The guiding principle of action was to be the intent of the higher commander. Officers were to ask themselves the question: “What would my superior order me to do if he were in my position and knew what I know?”

An understanding of intent was the essence of independent action.

German army success in the beginning of WW2

In 1933, the German Army produced a new guide to its leadership philosophy called Truppenführung (literally “Troop Leadership”), which marks the next stage in the maturity of Auftragstaktik.

It was issued to all officers. In it we read: The basis of leadership are the mission (Auftrag) and the situation. The mission identifies the goal to be achieved and must always be the point of focus. A mission which tries to encompass multiple tasks can all too easily obscure what really matters.

An uncertain situation is normal. It will rarely be possible to gain more accurate information about the state of the enemy. While you should obviously try to find out as much as possible, waiting for more information in a critical situation is seldom a sign of incisive leadership, and often a serious mistake.

The mission and the situation lead to a decision. If the mission no longer provides a sufficient basis for action, or if it is made redundant by events, the decision must take this into account.

If anyone changes a mission or does not carry it out, he must report the fact and he alone bears responsibility for the consequences. He must always act within the framework of the whole.

A decision should pursue a clear goal with all the means available. It is the resolution of the leader which carries it through. The will to succeed can in itself often bring about success.

Once a decision has been made, it should only be departed from in exceptional circumstances. In the vicissitudes of war, however, sticking rigidly to a decision can also be a mistake. Part of the art of leadership is to recognize the time and circumstances in which a new decision is called for.

A leader must grant his subordinates freedom of action as long as doing so does not compromise his intention. He must not, however, allow them to make a decision for which he is responsible.

Failure of the Auftragstaktik towards the end of WW2

A contributing factor to the German defeat was Hitler’s contempt for the principles of Auftragstaktik and his attempts to reverse its practice, particularly on the Eastern Front from 1942 onward.

Running through the whole conception was the principle of trust. Hitler had never trusted his generals. As long as they won battles for him, he left them alone, but as the demands he placed on them grew and the scope of the war extended beyond Germany’s ability to fight it, so success faltered.

As half-victories turned into defeats, his mistrust grew, and with it his interference and the level of detail he tried to manage. Auftragstaktik is not popular with tyrants.

From Auftragstaktik to mission command

In 1977 US Army Colonel Trevor Dupuy reluctantly concluded: On a man for man basis, the German ground soldier consistently inflicted casualties at about a 50% higher rate than they incurred from the opposing British and American troops under all circumstances. This was true when they were attacking and when they were defending, when they had a local numerical superiority and when, as was usually the case, they were outnumbered, when they had air superiority and when they did not, when they won and when they lost.

Today, the operational manuals of organizations like the US Marine Corps or the British Army all contain passages which could have been lifted from Truppenführung.

There is a method for developing plans, breaking them down, and using them to brief subordinates. There is a procedure, which the military calls “mission analysis,” to help subordinates to draw out the implications of what they have been asked to achieve.

After briefings, subordinates then go through a process of “backbriefing” their superiors to check their understanding of the intent and its implications before passing it down the line to their own subordinates in a cascade. These techniques create internal predictability, which helps when the environment is chaotic, and allow scalability.

Part 5: Back to the world of business

Shortly after becoming Chairman and CEO of GE in 1981, Jack Welch read a letter in Fortune magazine written by Kevin Peppard, Business Development Director of Bendix Heavy Vehicle Systems. Bungay quotes the letter in full, what follows here are some outtakes:

“Through your excellent series on the current practice of strategic planning runs a common thread: the endless quest by managers for a paint-by-numbers approach, which would automatically give them answers. Yet they continually fail in that pursuit. I am struck by the parallel to military strategists. Before the French Revolution, generals had seen military strategy as a matter of geometry, with precise rules to observe… Precepts had abounded… then Napoleon disproved all the maxims… Detailed planning necessarily failed, due to the inevitable frictions encountered: chance events, imperfections in execution and the independent will of the opposition. Instead, the human elements were paramount: leadership, morale, and the almost instinctive savvy of the best generals... Business and war may differ in objectives and codes of conduct. But both involve facing the independent will of other parties. Any cookbook approach is powerless to cope with the independent will, or with the unfolding situations of the real world.”

Nevertheless, why should the results of these endeavors be of interest to us today?

First, they represent one of the earliest, well-documented attempts in the modern age to create a system of what we now call “empowerment,” granting wide freedom of action to junior members of a large, complex organization.

The desirability of doing so was not generally accepted in the business world until well into the latter half of the twentieth century. Indeed, during the first half of that century, business went the other way.

From mission command to what Bungay calls “directed opportunism”

Management is not a science but a practical art. Practicing it skillfully means applying general principles in a specific context.

The name Bungay has chosen for mission command in business is “directed opportunism.”

Solution constitutes a system and enacting it involves going round a loop. It involves abandoning the linear model of developing a strategic plan and then implementing it. Instead, there is a cycle of thinking and doing. The horizon within which actions are planned is limited, the effects of the actions are observed, reflected on, and new action initiated. So, the thinking – doing loop becomes a learning – adapting loop.

An organization which behaves in this way will be observed to act rapidly and keep adjusting what it does. So, the “plan-and-implement model” of strategy becomes a “do-and-adapt” model.

Strategy development and execution merge into one circular process.

People whose self-understanding is a version of Noll’s, who see themselves as functionaries, the servants of a process, or cogs in a machine, behave quite differently from those who understand themselves as independent agents bearing some responsibility for the achievement of a collective purpose and as part of a living organism.

The role of strategy

Strategy is a framework for decision-making, a guide to thoughtful, purposive action.

Why does a business need a strategy in the first place? As a collective enterprise, a business organization needs to act cohesively. It may have a very clear vision or sense of purpose, and for some types of organization that can suffice to provide the cohesion needed. However, it is unlikely to suffice for a business.

A business is a collective enterprise that must prosper in a competitive environment. Before the 1970s, business success was widely regarded as a matter of participating in attractive markets. As everybody followed this precept, competition within these markets increased, making them less attractive, and returns became mediocre.

The fundamental purpose of most businesses is to create value, often measured by, and sometimes identified with, the value created for shareholders.

From the point of view of those responsible for directing the business, that does not specify how value is to be created. From the point of view of the members of the organization, it does not tell them what they are supposed to do.

They need some direction, and what makes that direction strategic is that it answers the question: “How are we going to compete?”

A good strategy is derived from insight into the basis of competition.

Answering the question “How are we going to compete?” prepares us for a collision with a series of independent wills outside the organization: those of customers, who may appear to be well disposed but who are ultimately unconcerned about our fate; and those of competitors, who, though they may share some common interests, are ultimately out to thwart us.

We may have allies in the form of suppliers, but we must engage them too with our enterprise or face unreliability, or even a war on two fronts. Then there are others. such as regulators, legislators, the media, and moneylenders, who may help or hinder us, stick by us through thick and thin, or demand kilograms of flesh at inopportune moments, but all of whom shape an environment of shifting constraints.

Because it involves preparation, we tend to identify strategy with a plan. This is dangerous.

Our quest for certainty can lead us to fall into the trap set by the knowledge gap and try to make perfect plans. This amounts to a failure to face reality.

In 1871, von Moltke wrote a three-page essay called “On Strategy” which confronts us with that reality. “The aspiration of strategy,” he wrote, is “to achieve the highest end it can with the means available.”

The first task of the strategist is to make resources available and deploy them. Initial resource deployment must be broadly correct, for it cannot be made good later. Here, detailed planning is required well in advance of any action.

Things are different, however, in the next main task of strategy: the use of these resources on operations. For here, we encounter the independent will of an opponent, which we can constrain but not command.

No plan of operations can extend with any degree of certainty beyond the first encounter with the enemy’s main body.

Only a layman could imagine that in following the course of a campaign he is watching the logical unfolding of an initial idea conceived in advance, thought out in every detail and pursued through to its conclusion.

Whatever the vicissitudes of events, a commander will need to keep his mind fixed unwaveringly on his main objectives, but he can never be certain beforehand which paths offer the best hopes of realizing them. Throughout the campaign he will find himself forced to make a whole series of decisions as situations arise which no one was able to predict.

In strategy there are no general rules or theorems of any practical value, von Moltke observes. It is not a science, and a good strategy is not enough to guarantee success: Indeed, strategy provides tactics with the means of beating the enemy and can increase the chances of success through the way in which it directs armies and brings them together on the battlefield.

On the other hand, strategy builds on every successful engagement to exploit it further.

Strategy is a system of expedients. It is more than science, it is the application of knowledge to practical life, the evolution of an original guiding idea under constantly changing circumstances, the art of taking action under the pressure of the most difficult conditions.

Surely, if a strategy has any value, it must be something we are doing now. It must inform operations. What we do operationally must be grounded in strategy, it must provide its rationale. Operations must be the manifestation of strategy. Otherwise, the organization would be doing things without knowing where it was heading or what it was trying to achieve. It would be blind.

A business in a socialist economy needs a plan, which requires the administrative resource-allocation skills of a manager. A business in a market economy needs a strategy, which requires the additional skills of a commander who can allocate resources to gain a competitive advantage.

Rather than a plan, a strategy is a framework for decision making. It is an original choice about direction, which enables subsequent choices about action. It prepares the organization to make those choices. Without a strategy, the actions taken by an organization degenerate into arbitrary sets of activity.

A strategy enables people to reflect on the activity and gives them a rationale for deciding what to do next. A robust strategy is not dependent on competitors doing any single thing. It does not seek to control an independent will. Instead, it should be a “system of expedients” – with the emphasis on system.

The role of strategy

Strategy is a framework for decision-making, a guide to thoughtful, purposive action.

Why does a business need a strategy in the first place? As a collective enterprise, a business organization needs to act cohesively. It may have a very clear vision or sense of purpose, and for some types of organization that can suffice to provide the cohesion needed. However, it is unlikely to suffice for a business.

A business is a collective enterprise that must prosper in a competitive environment. Before the 1970s, business success was widely regarded as a matter of participating in attractive markets. As everybody followed this precept, competition within these markets increased, making them less attractive, and returns became mediocre.

The fundamental purpose of most businesses is to create value, often measured by, and sometimes identified with, the value created for shareholders.

From the point of view of those responsible for directing the business, that does not specify how value is to be created. From the point of view of the members of the organization, it does not tell them what they are supposed to do.

They need some direction, and what makes that direction strategic is that it answers the question: “How are we going to compete?”

A good strategy is derived from insight into the basis of competition.

Answering the question “How are we going to compete?” prepares us for a collision with a series of independent wills outside the organization: those of customers, who may appear to be well disposed but who are ultimately unconcerned about our fate; and those of competitors, who, though they may share some common interests, are ultimately out to thwart us.

We may have allies in the form of suppliers, but we must engage them too with our enterprise or face unreliability, or even a war on two fronts. Then there are others. such as regulators, legislators, the media, and moneylenders, who may help or hinder us, stick by us through thick and thin, or demand kilograms of flesh at inopportune moments, but all of whom shape an environment of shifting constraints.

Because it involves preparation, we tend to identify strategy with a plan. This is dangerous.

Our quest for certainty can lead us to fall into the trap set by the knowledge gap and try to make perfect plans. This amounts to a failure to face reality.

In 1871, von Moltke wrote a three-page essay called “On Strategy” which confronts us with that reality. “The aspiration of strategy,” he wrote, is “to achieve the highest end it can with the means available.”

The first task of the strategist is to make resources available and deploy them. Initial resource deployment must be broadly correct, for it cannot be made good later. Here, detailed planning is required well in advance of any action.

Things are different, however, in the next main task of strategy: the use of these resources on operations. For here, we encounter the independent will of an opponent, which we can constrain but not command.

No plan of operations can extend with any degree of certainty beyond the first encounter with the enemy’s main body.

Only a layman could imagine that in following the course of a campaign he is watching the logical unfolding of an initial idea conceived in advance, thought out in every detail and pursued through to its conclusion.

Whatever the vicissitudes of events, a commander will need to keep his mind fixed unwaveringly on his main objectives, but he can never be certain beforehand which paths offer the best hopes of realizing them. Throughout the campaign he will find himself forced to make a whole series of decisions as situations arise which no one was able to predict.

In strategy there are no general rules or theorems of any practical value, von Moltke observes. It is not a science, and a good strategy is not enough to guarantee success: Indeed, strategy provides tactics with the means of beating the enemy and can increase the chances of success through the way in which it directs armies and brings them together on the battlefield.

On the other hand, strategy builds on every successful engagement to exploit it further.

Strategy is a system of expedients. It is more than science, it is the application of knowledge to practical life, the evolution of an original guiding idea under constantly changing circumstances, the art of taking action under the pressure of the most difficult conditions.

Surely, if a strategy has any value, it must be something we are doing now. It must inform operations. What we do operationally must be grounded in strategy, it must provide its rationale. Operations must be the manifestation of strategy. Otherwise, the organization would be doing things without knowing where it was heading or what it was trying to achieve. It would be blind.

A business in a socialist economy needs a plan, which requires the administrative resource-allocation skills of a manager. A business in a market economy needs a strategy, which requires the additional skills of a commander who can allocate resources to gain a competitive advantage.

Rather than a plan, a strategy is a framework for decision making. It is an original choice about direction, which enables subsequent choices about action. It prepares the organization to make those choices. Without a strategy, the actions taken by an organization degenerate into arbitrary sets of activity.

A strategy enables people to reflect on the activity and gives them a rationale for deciding what to do next. A robust strategy is not dependent on competitors doing any single thing. It does not seek to control an independent will. Instead, it should be a “system of expedients” – with the emphasis on system.

Strategy under uncertainty

For example, there may be big changes expected in technology or regulations which will affect our markets profoundly over the next few years but their exact nature and timing are unknown.

We may not need to worry about that very much, though; arriving at Los Angeles might serve us as well as arriving at San Francisco. The important thing is to get going.

With a broad sense of what changes are likely, we can get away with a compass heading like “Go west” and keep our future options open.

On the other hand, if short-term uncertainty is very high because the markets are currently very turbulent, we may not be able to say whether to go west or north over the next few months. However, we may be clear about where we want to get to when things have calmed down. In that case the destination will give a capable organization enough direction to be able to duck and weave its way through the uncertain period and emerge in a better place than it started in.

We need to make decisions which are “about right – now,” take action to change the situation, and then move on to the next decision. The laws of probability dictate that if our decisions are reasonably good, we will avoid disaster and are likely to do quite well. We will certainly outperform someone who tries to take one big decision about how to do everything or someone who makes no decisions at all.

We manipulate luck by making a series of small choices which open further options. To be good at this we need knowledge, but also judgment and skill acquired through native talent and training. Doing strategy is a craft which, like all practical skills, can only be mastered through practice, by learning from our own and others’ experience.

Strategy and operations

However, the relationship between strategy and operations, between strategy development and strategy execution, is reciprocal: “strategy builds on every successful engagement to exploit it further.” Strategy is about fighting the right battles, the important ones you are likely to win. Operations are about winning them. The intelligent way to manipulate luck is to observe the effects of actions and exploit successes. The organization thus goes round the thinking – doing loop.

All we can observe is an organization taking actions. Whether the consequences were intended or not makes no difference, but we can still distinguish strategy from operations. Operations are about doing things right. They involve reacting to problems and eliminating weaknesses, because in conducting operations you are as strong as the weakest link.

You can improve by imitating others, because achieving operational excellence means adopting best practice. Strategy, in contrast, is about doing the right things. It involves proactively shaping events and investing in strengths, because in creating a strategy you must make choices, to decide to do some things and not to do others.

You can shift the odds in your favor by differentiating yourself from others, because a good strategy seeks uniqueness.

Developing strategy

In assessing ends and means, we have above all to be realistic. Developing strategy is an intellectual activity. It involves discerning facts and applying rationality.

There are people who possess a highly refined ability to penetrate the most demanding problems, who do not lack the courage to shoulder many burdens, but who nevertheless cannot reach a decision in difficult situations. Their courage and their insight stand apart from each other, never meet, and in consequence they cannot reach a decision. Conviction results from an act of mind which realizes that it is necessary to take a risk and by virtue of that realization creates the will to do so… the sign of a genius for war is the average rate of success.

Insights into the center of gravity of a business and hence innovative strategies tend to come from people of long experience who have an unusual capacity to reflect on that experience in such a way that they become aware of the patterns it shows. This awareness enables them to understand how all the elements of their experience relate to each other so that they can grasp and articulate the essentials.

Because they base their decisions on that understanding, and because that understanding is sound, they tend in the long run to get more things right than wrong and so demonstrate the above-average success rate that Clausewitz identifies as marking them out. We tend to speak of them as having “good judgment.” In their field they do. But because it is grounded in pattern recognition, the quality of their judgment is dependent on context, and they do not necessarily display it in every area of human activity.

Summary on strategy

A business strategy sets direction by considering both the ends to be achieved and the means of achieving them in a competitive environment. Means include execution.

Strategy development and strategy execution stand in a reciprocal relationship and codetermine each other. A strategy is not in itself a plan, but prepares the organization for the future by providing it with a framework for decision making, based on some basic choices about how to compete. It is “the evolution of an original guiding idea under constantly changing circumstances.” Depending on the nature of the uncertainties in the environment, a strategy can set direction by giving a compass heading or a destination, or both.

A robust strategy does not guarantee success, but shifts the odds in one’s favor. Thinking strategically involves “going round the loop” to establish coherence between aims, opportunities, and capabilities. It is a rational activity involving analysis, experience, and pattern recognition to generate insight into the basis of competition, the center of gravity of the business. Good strategies involve risk, but they are realistic, not heroic.

A strategy is fundamentally an intent: a decision to achieve something now in order to realize an outcome; that is, a “what” and a “why.” Even if our destination is unclear, we need some sense of the end-state to be achieved which gives our current actions a purpose. And even if the current situation is volatile, we need to decide what to do next to get into a better position than we are in at present.

Strategic thinking can therefore be laid out as a staircase: a logical sequence of steps which lead to an end-state, which is either the destination or a position which opens future options. The steps of the staircase define the organization’s “main effort” at a strategic level. The main effort is that single thing which will either have the greatest impact or on which all other things depend. It has resourcing priority. Defining main effort creates focus and energy, helps people to make trade-offs, and cuts through complexity.

Part 6: Execution

Complexity is the most insidious enemy of execution. If the environment is complex, the temptation is to mirror the complexity internally. If it is fast changing, the temptation is to match it with the pace of internal change. In fact, if an organization is to cope it needs to create as much internal predictability as it can and to make things simple.

Strategy briefing and backbriefing

A typical list of things a manager must achieve in a year might look like this:

  1. Increase revenue by 8%
  2. Raise average net margin to 15%
  3. Open a new office
  4. Reduce costs by 5%
  5. Hire five new sales people
  6. Increase employee satisfaction
  7. Complete negotiations on a long-term contract
  8. Introduce the new credit control system

Using the concepts of the strategy briefing, a first run through the list could reveal the following:

  1. Increase revenue by 8% (our potential main intent)
  2. Raise average net margin to 15% (our potential main intent)
  3. Open a new office (implied task supporting, delegate)
  4. Reduce costs by 5% (implied task supporting)
  5. Hire five new salespeople (implied task supporting, delegate)
  6. Increase employee satisfaction (an outcome, possible metric)
  7. Complete negotiations on a long-term contract (implied task supporting)
  8. Introduce the new credit control system (separate task, delegate)

An important corollary of unity of effort is the emphasis on clarity and simplicity. What matters about creating alignment around a strategy is not the volume of communication, but its quality and precision.

For something to be clear, it must first be made simple. What is not simple cannot be made clear.

In the “backbrief” three things happen:

  • The first obvious thing is that the unit being briefed checks its understanding of the direction it has received or worked out.
  • Secondly, and less obviously, the superior gains clarity for the first time about what the implications of their own directions actually are and may revise them as a result.
  • Thirdly, it provides an opportunity to ensure alignment across the organization as well as up and down it.

If everyone backbriefs together, the results can be checked for gaps, overlaps, and coherence. Adjustment follows. It is very difficult, and indeed is a waste of time, for someone to try to think through for themselves all the implications of what they are asking people to do two levels below them.

It is in this way that the senior people themselves get to grips with what the organization is going to do because of what they have specified. It is normal for them to get it slightly wrong the first time around. It is also quite normal for a strategy brief to require revision.

Regarding what is needed to make people change, we might modify them for an organization as the following:

  1. What is said is not yet heard.
  2. What is heard is not yet understood.
  3. What is understood is not yet believed.
  4. What is believed is not yet advocated.
  5. What is advocated is not yet acted on.
  6. What is acted on, is not yet completed.

There is an understandable tendency for leaders of organizations to concentrate on the first step, demanding enough in itself, and assume that once that has been achieved, their work is done. In fact, it has just begun.

This practice has been arrived at by trial and error. Experience suggests that understanding the immediate intention one level up is not enough to give full alignment if things change, and that understanding the intention three levels up is of little additional help. Two levels up is like “Goldilocks’ porridge”: it is just right. It puts people in the position of being able to answer the question: “What would my boss want me to do if they were here now and knew what I know?”

Recap of briefing and backbriefing

People at all levels can find themselves in situations where they must exercise independent thinking obedience. They can only do so if the organization has already prepared them by providing them with the information, they need to take decisions. That information can be formulated as a statement of intent, which distills the strategy for everyone. That statement can then be broken down into its component parts and used to start a process of briefing each level.

A briefing should cover the higher intent, up to two levels up, the tasks that this implies for the unit concerned, where their main effort should lie, and their freedoms and constraints. Working this through in a structured way pays dividends in aligning the organization both up and down levels and across functions.

The whole organization can be aligned if briefing is done in a cascade, with each level adding more specificity to the tasks implied by the higher intent, and then presenting the results to the level above in a process called backbriefing. This checks mutual understanding, allows for adjustment of the original brief, and, when done collectively, helps alignment across functions.

A briefing cascade will only work properly if the organizational structure broadly reflects the task structure implied by the strategy. If it conflicts with the strategy, it should be changed before anything else. It requires an appropriate level of hierarchy of entities that can be made wholly or largely accountable for critical tasks, led by people who are skilled and experienced enough to make autonomous decisions.

Part 7: Building the organization

The issue comes down to people. They are both the problem and the answer. Nothing happens unless the key people involved in it want it to, and if the top team does not stand four-squarely behind the strategy, it is doomed. They may not say that they disagree, but if there is a conflict between the strategy and their real convictions, you may as well not start.

Curiously, people’s convictions tend to correlate with their interests. Their interests are largely determined by the structure and the compensation system. Both, therefore, must be examined to identify and remove any conflicts.

There are many reasons for adopting any particular organizational structure, and no single structure is good for all circumstances. Reasons may include the strategy, but are as likely to encompass the availability of people, the need to provide platforms for them, the need to emphasize some things at the expense of others, the need to separate some business units from others in order to protect their culture, and so on.

In the light of that requirement, here are three questions to ask:

  1. Can we identify organizational entities which can be made wholly or largely accountable for executing the key elements of the strategy to the extent that controls are in place to measure how well they are doing so?
  2. Are the leaders of these units skilled and experienced enough to direct their units on a semi-autonomous basis and are they committed to the strategy?
  3. Is there enough, but not too much, hierarchy, and does each level of the hierarchy have the decision rights it needs to play its part?

Hierarchy is valuable. It allows one to take decisions on behalf of many, enabling an organization to carry out different collective actions simultaneously and cohesively. We are familiar with cases of having too much hierarchy, roles overlap and become unclear, effort is duplicated, decision making slows down, costs rise, and power becomes more important than knowledge.

However, it is also possible to have too little. If there is not enough hierarchy, effort fragments, local interests are optimized, scale and focus are lost, and cohesion dissipates. A hierarchy only works if it encompasses appropriate decision rights and responsibilities. Decision rights are appropriate if the person or group with the best knowledge and expertise in any given area can act in a timely manner without asking for permission.

So, for example, prices may be set by central marketing, regions allocate marketing budget, countries decide about the weight given to different distribution channels, and local sales organizations decide which customers to target.

If there is not enough hierarchy and local sales organizations report directly to the center, then either the center will dictate everything, resulting in massive information flows and rigidity, or there will be chaos as prices vary from place to place in a single market.

What does anyone need to know to take action? They need to know something about the overall intent. Armed with this knowledge, they themselves need to say what they are going to do as a result. In other words, they need to break down their task into further tasks implied by their main one, assign them, and pass the message on.

In order to close the communications loop, they need to repeat the message back up, adding the specific tasks they intend to undertake. This simple but critical step–which is as obvious in theory as it is rare in practice, is called a “backbrief” (discussed earlier in this book summary).

Hiring the right people

To create that organization, von Moltke needed to recruit and develop the right people. While doing so did not depend on finding individuals of genius, it did depend on identifying and developing a body of people with the right talent and putting them in the right place in the organization. Here, there was a problem.

The purpose of the Academy was twofold. The first was to act as a rigorous selection mechanism. The second was not only to train professional skills, but to develop a group of people who would make similar judgments and behave in similar ways because they shared a common doctrine. The best junior officers with at least three years’ service could apply for a “high potentials” course which would lead to entry into the General Staff.

The questions were mainly problems requiring a solution, and marks were awarded for the quality of the decision, the reasoning behind it, and the originality of approach. The objective was to identify potential based on clarity of reasoning and decision-making ability.

Von Moltke regarded the War Academy as one of his most important instruments for building the organization he wanted. The General Staff course passed out only the best of the best. The syllabus of the War Academy was designed not simply to build skills, but to impart a shared approach and ethos. The single aspect of performance emphasized more than any other was individual initiative and responsibility.

Von Moltke supervised his high potentials program himself, and spent two weeks of every year from 1858 to 1881 leading 20–40 officers on a staff ride, and so directly influenced the thought processes of the people at the top of his organization. They were taught to identify the essentials of a situation and act rapidly and incisively. They were taught to recognize patterns and use their intuition, to take decisions which were “about right – now” rather than wait for more information, and then take another decision as they saw the effects of the first. They were taught to think independently and use their own judgment; one exercise put officers in a position in which they had to disobey orders in order to be successful.

Von Moltke reinforced the behavioral norms in the way he reacted to mistakes. He knew that punishing one case of misjudgment would kill off every attempt to foster initiative in the officer corps for years to come. “It is easy to pass judgment after the event,” he wrote. “For that reason, one should be extremely careful before condemning generals.” That notion was made official, and applied not merely to generals but to all officers. The Field Service Regulations of 1888 contain the sentence: “All commanders must always be aware that an omission or failure to act is a graver charge than making a mistake in the choice of means.”

Superior officers were instructed to refrain from harsh or wounding criticism of mistakes lest it undermine the self-confidence of subordinates, to praise the fact that they did show initiative, and to correct them in such a way that they learn. Otherwise, as one general wrote, “you will extinguish a hundred positive initiatives in order to prevent one error, and thereby lose a tremendous amount of energy.”

We realize that employees – all of us – won’t always be right, but it is better that they make mistakes than not try to solve customers’ problems. We discourage our managers from coming down on an employee like a ton of bricks if the decision the employee made was wrong. Instead, we want managers to explain why the decision was wrong and what the right decision should have been, so that the next time the employee is confronted with a similar situation he or she will get it right.

If Tracy’s employer (from a story mentioned in the book) wants her to use the space it gives her to be adaptive, it will be careful about how it selects her, the training she gets, the environment it places her in, and what it expects of those who lead her.

Autonomy is granted only after a rigorous process.

Developing people

We would be well advised to bear in mind the difference between being ready, willing, and able. If things are not happening as we want, we tend to assume that people have not understood.

Sometimes, however, repeating the message does not have any effect. Sometimes, people understand it quite well, but do not see what is in it for them, do not believe the organization is capable of doing it, or doubt that it means what it says.

People only show independent thinking obedience if they have the means to do so and are operating within a network of trust. The first thing is to get the right people into the network in the first place.

It is important who you let through the door in the first place, and what positions you put them in. Just as some can act as multipliers, so others are dividers. Some people are not suited to the principles of directed opportunism.

They fall into two main groups. Those in one group like being told exactly what to do and following procedures. They are uncomfortable with responsibility and lack the self-confidence to exercise independent judgment. So, their default behavior pattern is to delegate upward by continually asking for direction.

The other group consists of natural authoritarians who only feel safe if they have total personal control. They are uncomfortable with uncertainty and lack the trust in others to delegate. Their default behavior pattern is to micromanage and punish deviation from set procedures.

Both groups are a problem, though the severity of the problem varies widely.

Sometimes, if their subordinates are relatively inexperienced or of low competence, micromanagement may be appropriate. The type of direction and the amount of space given to any subordinate must be appropriate for their skills and experience.

Nevertheless, few business organizations are large enough to be able to afford an all out academy. Answer is to focus the training and development effort on the critical groups of people, to do some training on the job, and to propagate the methods required outside of the classroom.

It is not necessary to train everybody in the organization in order to inculcate directed opportunism. The key group is upper – middle management, people running a department or unit who are senior enough to have to make strategic decisions. Typically, this is two levels below the executive board.

They need to master the disciplines of strategic thinking and briefing. If the development effort is focused on them, they will then pass down the skills and develop them in those working for them. Because they have day-to-day operational roles, they will have a greater influence on culture and behavior than more senior executives.

Training of this kind cannot be theoretical. It only works if it takes the actual situation as its starting point. The best way to do that is by running workshops designed to support the development and promulgation of the current strategy.

First time around the results will not be perfect, but they will be better than otherwise. The second time, things will go more smoothly, and the results will generally be clearer and more incisive. After that, occasional reinforcement will maintain quality. Doing it for real every time speeds up learning.

Drivers of behavior

While it will not guarantee such alignment, good formalized or semi-formalized briefing and backbriefing will tend to flush out incongruities. It is not designed to make personal goals and aspirations explicit, but it does force people to reflect about whether they are really willing to undertake the task assigned to them and gives them the opportunity to challenge it. If they are of good will, it can counteract unintended consequences of the kind described.

If they are not of good will, it makes it harder for them to hide. If they are not of good will and clever enough to keep their real motives hidden, one has a different kind of problem.

Keeping score: KPIs and other indicators

Organizations like processes, but they adore metrics. The knowledge gap acts like a vacuum which sucks metrics in. Their precision creates the satisfying illusion that they lack ambiguity, and our ability to collect and collate them creates an equally seductive feeling of control.

As advances in technology over the last 15 years or so have allowed the collection and dissemination of ever more measures, adoration has turned into infatuation. Infatuation leads to perversity. Metrics become an end in themselves and get separated from what it was they were intended to measure in the first place. They become a fetish.

This danger is particularly pronounced if the metrics are not simply monitored to see whether things are on track but are turned into targets which define performance and hence individuals’ success. If they are furthermore linked to compensation, the danger becomes acute. For then, if faced with a choice between optimizing targets and optimizing what really matters, people optimize the targets.

Target setting is not inherently bad; far from it. But the practice leaves a lot to be desired. It is precisely because measurable targets are so powerful that we need to treat them with great care. What gets measured gets done. That is the beauty of it. The Beauty can turn into a Beast. What gets measured gets done–and nothing else.

If we are not careful, we may get exactly what we have asked for, and regret it.

The first thing is that – all protestations to the contrary apart – a scorecard is fundamentally a control system, whereas the prime purpose of strategy is command; that is, setting direction. Unless the “what” and the “why” are clear, the fetishization of the metrics is a near certainty.

To exercise command is to articulate an intention to achieve a desired outcome and align a system to behave in such a way that the outcome can be expected to be achieved. To exercise control is to monitor the actual effects resulting from the behavior, assess the information, and report on the system’s performance with respect to the desired outcome.

It is then the function of command to decide what to do: to adjust the behavior of the system, take some other action outside the system, or indeed to abandon the original intention and change the desired outcome.

The fourth thing is that while no driver would undertake a journey in a car with no instrument panel, when they’re actually driving good drivers spend most of their time looking through the windscreen at the road and the other traffic and react fast to what they see. Similarly, no company should neglect the need for a scorecard, but sophisticated measuring systems can encourage bad driving habits.

There is no substitute for direct observation, which is why von Moltke had a telescope, talked to people all the time, and had his own staff officers visit units and report back to him what they saw. He was not going to rely on reports.

An executive needs an up-to-date mental picture of what is going on in and around the business; a scorecard is only one source of information from which that picture can be formed.

In the final analysis it is behavior that counts. If we close the knowledge and the alignment gaps in the ways suggested so far, we will be able to gain traction, focus effort, and deliver a strategy – until something unexpected happens, which sooner or later it will. At that point everything depends on people.

Metrics give us information. Interpreting the information can impart understanding. Taking the right action requires wisdom. Only people can have that.

Part 8: Strategy, operations, and tactics

Routine tasks such as forming up a column of march or deploying a skirmishing line were standardized and everybody was trained in how to do them. Today, they include things such as forming a roadblock, and are called standard operating procedures or SOPs. They are very useful because they create uniformity and therefore predictability where that has high value. They enhance efficiency by enabling these tasks to be carried out at speed with little supervision.

The three levels tend to correspond naturally to levels in the organization:

  • Strategy is about winning wars and involves armies; operations is about winning campaigns and involves corps and divisions; tactics is about winning battles and involves brigades, battalions, and companies.
  • We might say (very broadly) that strategy involves business units, operations involve departments and functions, and tactics involves sub-units, whether in support roles or with direct customer contact.

Three-level thinking helps us to understand the legacy we have inherited from scientific management. Taylor had insights, and they endure. The prize is efficiency, and no business can afford to be inefficient.

Taylor’s error was to universalize his approach and apply it to all business activity instead of restricting it to the realm of tactics. He thereby created a problem for businesses trying to follow his edicts 50 years later when the world had changed. The answer to that problem had been worked out another 50 years before him, but he was quite unaware of it.

One can hardly blame him. Some people who were aware of the source of the solution still could not see it.

Leading and managing

Managing means understanding objectives, solving problems so that they can be achieved, and creating processes so that the work of others can be organized efficiently. Good management means making the maximum use of resources, including money and people.

Leading is a human activity that is moral and emotional. The work of a leader is to motivate and if possible, inspire followers so that they are willing to go in the required direction and perform their own tasks better than they would have done had the leader not been there.

Leaders must balance their attention between defining and achieving the specific task of their group, building, and maintaining the team as a team, and meeting the needs of and developing the individuals within it.

Some inspiring leaders are poor managers, some brilliant commanders are ineffectual leaders, and some very efficient managers can neither command nor lead. In most organizations, all three sets of skills are equally important. This has two consequences. It means that although the circles overlap, each of us must be aware of what mode we are primarily operating in at any point in time; and it means that we must beware of how we select our commanders.

Executives who master the disciplines of formulating and giving good direction can explain to people what they must achieve and why, and so make them ready to act. By mastering management, they can put people into a position in which they are able to act. And by leading them effectively they can sustain people’s willingness to carry on until the job is done.

Conclusion

Leading-edge business thinker Philip Evans has pointed out that organizations like Linux and Toyota are self-organizing networks in which the overall intent is shared without being laid down. Linux has no single leader.

Self-organizing networks have all the characteristics we have observed to be cornerstones of directed opportunism: a lot of people taking independent decisions based on a shared intent and high mutual trust. The strong connection between the top and bottom of a hierarchy created by a briefing cascade is replaced by a strong network with widely dispersed knowledge and myriad dense interconnections.

This may not be a solution to everybody’s problems, nor would it be practical for most organizations to transform themselves overnight into self-organizing networks. It may, however, reinforce the attractions of the compass heading I have been advocating.

As I observed at the outset, what I am advocating is no more than common sense, but common sense is not so common in practice. -Stephen Bungay

Winston Churchill is said to have observed: Most people, sometimes in their lives, stumble across truth. And most jump up, brush themselves off, and hurry on about their business as if nothing had happened, here is Bungay’s summary of the book in some points:

  1. We are finite beings with limited knowledge and independent wills.
  2. The business environment is unpredictable and uncertain, so we should expect the unexpected and should not plan beyond the circumstances we can foresee.
  3. Within the constraints of our limited knowledge, we should strive to identify the essentials of a situation and make choices about what it is most important to achieve.
  4. To allow people to take effective action, we must make sure they understand what they are to achieve and why.
  5. They should then explain what they are going to do as a result, define the implied tasks, and check back with us.
  6. They should then assign the tasks they have defined to individuals who are accountable for achieving them and specify boundaries within which they are free to act.
  7. Everyone must have the skills and resources to do what is needed and the space to take independent decisions and actions when the unexpected occurs, as it will.
  8. As the situation changes, everyone should be expected to adapt their actions according to their best judgment in order to achieve the intended outcomes.
  9. People will only show the level of initiative required if they believe that the organization will support them.
  10. What has not been made simple cannot be made clear and what is not clear will not get done.

See more great book notes here.