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October 30, 2003

Destination Known: An Interview with Robert A. Burgelman

Strengthened by BI and performance management, businesses are focused on improving their strategy development. In an interview, Stanford University Graduate School of Business Professor Robert A. Burgelman discusses how strategy is made and analyzes the impact of technology

by David Stodder

Continued from Page 1

Burgelman: Companies should be concerned with three strategic leadership challenges. The first is to exploit opportunities associated with the existing strategy, that is, mainstream or core business opportunities. This requires what former Intel CEO and current chairman Andy Grove calls "vectoring" the organization: the discipline of setting a clear direction and getting everyone in the organization to pull in that direction. This depends on doing a lot of things right: creating the appropriate organization structure and effectively implementing planning and control systems, measurement and reward systems, and more. It also depends on putting in place leaders who really want to drive their part of the organization in the set direction.

The second strategic leadership challenge is to exploit new opportunities outside of the existing strategy to sustain profitable growth before the existing core business opportunities are no longer sufficient to meet objectives. This requires a second discipline that is different from vectoring the organization. I summarize what we know about this in my book, but we still need to learn more about this second discipline's requirements.

The third challenge is to balance the emphasis of the first two disciplines over time. This seems very difficult; most companies address the two sequentially. During some periods they focus hard on core business opportunities, while at other times they focus on new business opportunities. These sequential, independent cycles are dangerous. During an entrepreneurial cycle, organizations often neglect their core businesses. Plus, if each entrepreneurial cycle essentially starts from scratch, the organization can't really develop the first discipline, much less a sustained approach to the second leadership challenge.

IE: We're at the beginning of a revolution in the use of information technology to monitor and measure the efficiency and efficacy of business activities and processes. How do you see this new stream of information — increasingly refreshed in real time and filtered through performance metrics — affecting strategic decision-making? Will it provide the data-based "structural context" that you've noted as critical for aligning strategy with action?

Burgelman: In my book, I talk a fair amount about the important role played in a company's strategy-making process by what I like to call the "internal selection environment." Call it the "culture" if you prefer, but this environment depends critically on the quality and accuracy of information about the performance of various business activities in the external environment.

The first principle of a change-ready internal selection environment is that resource allocation should reflect competitive reality. Just think about it: How can resources be allocated rationally if the company does not know which business activities are winning or losing in their external environments? The answer is that the company can't know. It will fall prey to inertia ("we've always allocated resources to this activity") or politics ("person x supports it, and he/she is powerful"). This implies the need to know competitive reality. And this, in turn, requires the sort of information that traditional accounting systems and management information systems can't deliver. So, I see great potential in business intelligence systems that provide executives with relevant, accurate, and timely information to help strategy-making in the future.

IE: In your book, you note Andy Grove's expression, "Let chaos reign, then rein in chaos." Did you find that this philosophical posture was important to Intel's ability to adapt to new market conditions by allowing internal freedom and entrepreneurship? How will companies avoid letting their imperative to understand, optimize, and align business performance with strategy blind them to the opportunities inherent in chaos?

Burgelman: Great question! Andy's famous statement about chaos captures the logic of the second discipline that I discussed earlier. Yet, the very story of Andy's brilliant and spectacularly successful strategic leadership of Intel during his tenure as CEO also highlights the danger of vectoring the organization. Intel became the driving force of the PC industry, but its destiny also became increasingly tied to that industry. In some ways, Intel's success created a lock-in with the PC industry. This engendered forms of strategic inertia that made it difficult for the company to develop the second discipline.