Quick Thoughts: The Best Strategy May Be No Strategy at All
John Padgett; Christopher K. Ansell The American Journal of Sociology, Vol. 98, No. 6 (May 1993)
I first read today’s linked paper shortly before it was published in 1993, while I was posted by my erstwhile employer, McKinsey and Company, with the Santa Fe Institute think tank. It is a 60 page sociology tract, complete with scholarly jargon and well known amongst tweedy academics of a sort, but bear with me for a few paragraphs as I summarize, because I believe that the observations therein offer insight to the tech investor as well as the renaissance scholar.
Padgett and Ansell analyzed the connections and interactions between 215 different families in 15th century Florence. Distilling their research to bullet points, the Medici family, led by patriarch Cosimo di Medici, was able to establish a dominance that lasted for more than three centuries for several key reasons:
- The Medicis were connected. Through marriage, commerce and patronage, the Medici family had connections with old money families, new money families, the merchant class and the church, groups that did not have close connections between one another.
- The Medicis had an information advantage. By virtue of his connectedness, Cosimo di Medici had more information about the capabilities and intentions of all of the elements of Florentine society than anyone else.
- The Medicis did NOT reveal their intentions. In managing a growing stream of requests from the various constituencies in Florence, Cosimo di Medici never betrayed his own self-interests or intentions. By doing so, the Medici family avoided stimulating opposition, as other families viewed the Medicis as neutral or supportive, and increased strategic options.
- The Medicis kept options open. By keeping their own dealings private and managing information flow amongst the social castes, the Medicis could delay hard choices and avoid closing off opportunities until absolutely necessary.
- The Medicis could guide others to behavior that suited their own interests. With the trust of the various segments of Florentine society and superior information, Cosimo di Medici could manipulate others to decisions that were to his own benefit.
Padgett and Ansell go on to label this mode as “Robust Action” and contrast it to the direct goal oriented approach immortalized by Machiavelli and familiar to readers of treatises on modern business strategy. No mission statements or corporate credos were hung on the wall of conference room at the Medici Palazzo.
To me, the obvious business analogy to Cosimo di Medici is Bill Gates. In its early days, Microsoft’s strategy was far from explicit and the company’s tendrils were extended in all directions. On one hand, a tight relationship with IBM had established MS-DOS (or PC-DOS, depending on which side you were on) as the standard operating system for a new class of inexpensive desktop computers. IBM trusted Microsoft and partnered again to develop a follow-on system to be known as OS2. At the same time, Microsoft was the lead application developer on the fledgling Apple MacIntosh, offering the first versions of Word and Excel exclusively on that platform. This explicit focus assuaged independent software developers, who continued to work feverishly on DOS applications, blissfully unaware of the impending doom. Again at the same time, Microsoft had also snapped up a 25% stake in The Santa Cruz Operation, which was the leading provider of desk top UNIX OS software, to cover that contingency.
The beauty of the Gates’ early strategy was that Microsoft had options in any scenario that developed. Apple wins? Microsoft expands its dominant position in Mac applications. IBM wins? Microsoft is the co-developer of OS2. UNIX wins? Not ideal, but the SCO stake gives them a play. Best case of all? Microsoft wins with the Windows OS that it developed quietly behind the scenes, and takes all the spoils of victory. Moreover, Microsoft knew the plans of all of its rivals – IBM, Apple, Lotus, Borland, WordPerfect, Novell, etc. – by virtue of its unique position amidst the various platforms.
It seems as though the lessons of early Microsoft have not been lost on today’s leading TMT players. For example, Google was a critical element of the first iPhone, with search and maps tightly integrated. Google CEO Eric Schmidt was sitting on the Apple board the day the company announced Android. Google’s search business also gives the company unmatched insight as to how consumers are using the Internet, even from competitive platforms, giving it confidence to integrate back into browsers and operating systems and forward into ever more specific web-based services. All the while, Google tends to keep its mouth shut about its long term plans, frustrating investors with inquiring minds that want to know, but also keeping its options open and avoiding conflict until absolutely necessary.
Facebook has obviously followed Google’s lead. Remaining private gives Mark Zuckerberg the right to remain silent, deflecting attention from the company’s massive infrastructure investment and designs on co-opting the entirety of the Internet experience for its locked in user base. (see last week’s blog post “Our Own Private Internet”) Meanwhile, Facebook can exploit its enviable user information flow and “must have” status on its rivals’ devices to find its way into the platform game. Even Amazon, which has historically been more open and straightforward with its strategy and tactics, has been more cagey of late in levering its position as the world’s largest book retailer into a position as the world’s largest e-reader platform, and then levering that into a broader platform play with the recently announced Kindle Fire. Amazon is ostensibly a Google partner, but Android is buried pretty deeply beneath the Fire’s user experience and one can imagine the day when Amazon decides to lose that connection.
Summarizing it all, information is more important today than ever, both about one’s customers and about one’s rivals. The long term competitive balance amongst the big players – Apple, Google, Amazon, Facebook and Microsoft – may well turn on the ability of these companies to marshal competitive advantage from their position in these webs of relationships and information. Against that, concrete goals and explicit plans are more of a burden than a benefit.