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Value chain mapping – making sense of executive strategy
In this first excerpt from his book on value chain mapping, Simon Wardley explains why business leaders need to understand the importance of maps for corporate strategy
This is the story of my journey from bumbling and confused CEO lost in the headlights of change to one with a better idea of what I was doing.
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This journey begins two decades ago in the lift of the Arts Hotel in Barcelona, when a senior executive handed me a short document and asked, “Does this strategy makes sense?”.
I hadn’t a clue whether it did or not. I had no idea what a real strategy was, let alone any concept of how to evaluate it. I leafed through the pages. It all seemed to make sense and the diagrams looked good, so I responded: “Seems fine to me.”
However, the reason why I said that was more to do with things looking familiar than anything else.
I had seen the same words used in other documents and some of the diagrams in other presentations. I had been to a conference where an industry thought leader told me about the stuff that mattered, and the same stuff – “innovation”, “efficiency”, “alignment”, “culture” – had all been highlighted in the document.
My internal logic was a sort of herd mentality, a “backward causality” that since it had been right there then it must be right here. Also, I was young and I didn’t want to show my inexperience.
I had convinced myself that the senior executive was bound to know the answer and was only asking me to test my abilities. But this moment stayed with me over the years because I knew I had been false and I was just covering my tracks, hiding from my own inability.
A decade later, I had risen through the ranks to become the CEO of another company. I was now the senior executive that the less experienced took guidance from. The company would live or die by the strategic choices I made.
I wrote the strategy – or, at least, I chose between the variations presented to me. But something had gone terribly wrong. Somewhere along the path to becoming a CEO, I had missed the lessons that would tell me how to evaluate a strategy.
I still had no means of understanding what a good strategy was, and it was no longer enough for me to think it “seems fine”. When I asked my juniors what they thought of our strategy, my heart sank when they replied, “seems fine to me”.
Unlike that confident executive in the lift of the Arts Hotel who was just testing some junior, I still hadn’t a clue. I was an imposter CEO. I needed to learn fast before anyone found out. But how?
In 2004, I sat down in my boardroom with our strategy documents and started to dissect them. There were lots of familiar and comfortable terms – we had to be innovative, efficient, customer-centric, web 2.0 and all that this entailed. Alas, I suspected these common memes were repeated in the strategy documents of other companies because I was pretty sure I had copied them.
I had heard the thought leaders at conferences and read analyst reports that proclaimed these same lines over and over as the new truth.
Talking with my peers, I became convinced that our strategy was almost identical to our competitors’. At least we were following the herd, I thought. But someone must have started these memes; how did I know they were right?
I was beginning to feel as though either the entire field of strategy was a cosmic joke played by management consultants, or that there was some secret tome everyone was hiding from me. I started using 2x2s, Swot analyses, Porter’s five forces and all manner of instruments. Everything felt lacking, nothing satisfied.
I knew that to the outside world the company was doing well, but internally we had communication issues and frustration over direction and organisation.
To improve matters, I had arranged for a management course that brought the entire team together. I had been seduced by the simple idea that we just needed to talk more. With better communication a strategy would become clear, as if by magic.
I rapidly discovered that despite all of our talking, daily status meetings and weekly Town Halls, no one beyond the very top level of management truly understood our strategy – and I doubted whether they really did. I was unsure if I understood it myself. Perhaps the problem was me. I shouldn’t be the CEO. At that point, in mid-2004, I was drowning in uncertainty.
There would soon come a reckoning when everyone would realise that behind the success, the bold pronouncements and confident exterior lurked a mass of doubt. They would rumble that I was faking it.
Serendipity – and knowing what you don’t know
By chance, I picked up a copy of The Art of War by the ancient Chinese military strategist Sun Tzu. Truth be told, I picked up several different translations as the bookseller told me none of them were quite the same.
That was serendipity and I owe that bookseller a debt of thanks because it was while reading through my second translation that I noticed something that had been missing in my understanding of strategy. Sun Tzu describes five factors that matter in competition between two opponents. Loosely speaking, these are purpose, landscape, climate, doctrine and leadership.
Sun Tzu’s five factors
For reference, Sun Tzu’s five factors are:
- Purpose is your moral imperative – the scope of what you are doing and why you are doing it. It is the reason why others follow you.
- Landscape is a description of the environment that you’re competing in. It includes the position of the troops, the features of the landscape and any obstacles in your way.
- Climate describes the forces that act upon the environment. It is the pattern of the seasons and the rules of the game.
- Doctrine is the training of your forces, the standard ways of operating and the techniques that you almost always apply.
- Leadership is about the strategy that you choose on considering your purpose, the landscape, the climate and your capabilities. It is to “the battle at hand”. It is context-specific.
When I looked at my strategy document, I could see a purpose and then a huge jump into leadership and the strategic choices we had made. Where were landscape, climate and doctrine? I thought back to every business book that I had read. Everything seemed to make the same jump from purpose to leadership.
I started to consider strategy in terms of these five factors. I understood our purpose – or at least I thought I did – but what about landscape?
Normally in military conflicts and even in games such as chess, we have some means of visualising the landscape through a map, whether it’s the familiar geographical kind or a game board. These maps are not only visual but context-specific – they apply to the game or battle at hand. A map enables me to see the position of the pieces and where they can move to.
This last point struck a chord with me. When playing chess there are usually multiple moves I can make. I choose one course of action over another because of experience, context and my understanding of the opponent.
In chess, there are two questions of “why?” – the “why of purpose”, usually the desire to win the game, and the “why of movement”, as in “why this move over that?”.
Strategy in chess is all about determining the why of movement – why I should move here rather than there. This is different from all the business strategy books that I have read. They tend to focus on the goal – the why of purpose. No one seems to discuss the why of movement. But the purpose of winning the game is not the same as the strategic choices I make during the game.
I started to think more about this. Though I was quite a reasonable chess player, this had come through experience. Obviously I had started as a novice a long time ago, when I spent a lot of time losing, especially to my father. How did I learn? How did I get better at the game? I would see the board, I would move a piece and I would learn that sometimes a particular move was more beneficial than another. I would refine my craft based on my gameplay on the board.
But this was not what I was doing in business. There, I had no way to visualise the environment, no means to determine why to move here rather than there and no obvious mechanism of learning from one game to another. We had a “why” in that the purpose of my company was “to be the best creative solutions group in the world”.
But even this was a bodge because we had multiple lines of business that didn’t quite fit together. We were an online photo service, a consultancy, a European customer relationship management (CRM) business, an identity web service, a fulfilment engine and an assortment of special projects around 3D printing and the use of mobile phones as cameras.
Crossing the river by feeling the stones
I had no real way of determining where we should focus, so our purpose was a compromise of doing everything. When I had taken over the company a few years earlier, we were on our way out, losing money hand over fist, and had to borrow significant sums to stay afloat. In reality, our purpose had been simply to survive.
In the next few years we had turned this around, become highly profitable and paid back the loans. Now we had a million or so in the bank and were growing. We had done so not through any deliberate focus on the landscape but by just grabbing opportunities and cutting costs where we could. We weren’t heading in a particular direction; we were just opportunists.
Former Chinese leader Deng Xiaoping once said managing the economy was like “crossing the river by feeling the stones”. Well, we were feeling the stones and being adaptive, but beyond simple metrics, such as being more profitable than last quarter, we had no real direction.
I felt as though I needed to pick one or two areas for the company to focus on, but since we were doing well in all areas and in the past we had failed with just one focus, I was not convinced it made sense. And how would I choose an action? Should I choose? Why here over there? This was the “why of movement” question.
In our board meetings, the way we decided on action was to look at different proposals and the financial state of the company, and decide whether a set of actions fitted in with our purpose, which admittedly was a compromise of past decisions. In chess. the equivalent would be “will this move bring immediate benefits?”.
But we had no chessboard for the business nor any long-term play. The more I examined it, the more I realised that our choice was often based on gut feel and opinion, though we had created arcane language to justify our haphazard choices – this project was “core” and that one “lacked a reasonable return on investment”.
I became convinced that while we had purpose of a sort, we had no real direction, no mechanism of learning, nor any means to determine the why of movement that is at the heart of strategy. We were successful in that we stumbled from one opportunity to another, but we could just as easily be walking further out to sea as crossing the river.
I continued to pursue this line of enquiry. Since Sun Tzu had principally written about military combat, I started diving into military history in the hope of finding other lessons. I became obsessively fascinated by the extensive use of maps in battle and for learning throughout history. I could think of no equivalent tool in business.
Similarly, I had no equivalent moves to learn such as flanking an opponent or pinning a piece in chess, or standard plays such as fool’s mate. All I had were endless books giving secrets of other peoples’ successes and extolling the virtues of copying great companies such as Fannie Mae, Nokia and Blockbuster. But I questioned how anyone knew whether any of this was right.
I floated the idea of topographical intelligence and the use of mapping in business with my peers from other companies. How did they learn from one business battle to another? To say I was disheartened by the response would be an underestimation. Beyond the blank stares, I was royally lectured on the importance of culture, of purpose, of technology, of building the right team and of execution.
However, I had built a great team from around the world. Already, in 2004, we were agile, we used and wrote open source technology, we had the equivalent of a private cloud, we were API-driven and had developed advanced techniques for continuous deployment of technology.
In the technology desert that was Old Street in London, we dominated the computing language of Perl. We had remarkable rates of execution, outstanding technology, an exceptional team and a strong development culture. This stuff was fine.
I reasoned that none of my peers were going to tell me how they did strategy, as it probably wasn’t in their interests to do so. But I believed that this was somehow important and so I kept on digging.
The importance of maps in military history
Topographical intelligence became hugely important and a decisive factor in numerous battles of the American Civil War, and it was around this time that I read the story of Ball’s Bluff.
It is not commonly cited as one of the major engagements of the war, but it was one of the largest in 1861 and it involved the utter rout of Union forces. Most saliently, Ball’s Bluff is an object lesson in the importance of maps and situational awareness.
Through misinformation and miscalculation, 1,700 Union troops were caught in disadvantageous terrain and slaughtered – with an eight to one kill ratio – by Confederates.
A thousand men were lost because the Union generals had no awareness of the landscape and marched soldiers blindly to their deaths on the vague idea that “the Confederates are somewhere over there”.
I found many examples where understanding and exploiting the landscape had been vital in battle. Perhaps the most famous is the ancient battle of Thermopylae. You’ve probably heard part of this story before in the tale of King Leonidas and the “300” Spartans.
In 480 BC, the Athenian general Themistocles faced a significant foe in Xerxes and the Persian army. He had choices – he could have faced them at Thebes or Athens itself.
However, Themistocles knew the territory and decided instead to block off the straits of Artemisium, forcing the Persian army along the coastal road into the narrow pass of Thermopylae known as the Hot Gates. In this terrain, 4,000-odd Greeks would be able to hold back 170,000 Persians for many days, buying time for the rest of the Greek city states to prepare.
In this singular example, the whys of movement and purpose were crystal clear to me. Certainly Themistocles had a purpose in saving the Greek states, but he also had choices about where to make a stand. He chose a deliberate set of actions that exploited the terrain to his advantage.
Situational awareness, use of terrain and maps appeared to be vital techniques in the outcome of any conflict. But I wasn’t doing any of this in our company strategy. I didn’t have any form of maps or understanding of the landscape. I was instead using tools such as Swot diagrams. (For those uninitiated in the arcane language of modern business “strategy”, a Swot – strengths, weaknesses, opportunities and threats – diagram is a tool to assess whether some course of action makes sense.)
In Figure 1, I’ve placed side by side a map and a Swot diagram for the battle of Thermopylae.
Figure 1: Themistocles’ map vs Swot
Now, ask yourself, what do you think would be more effective in combat – a strategy built on an understanding of the landscape or a Swot diagram? What do you think would be more useful in determining where to defend against the horde of Xerxes’ army? Which would help you communicate your plan? Would Themistocles ever be able to exploit the landscape from a Swot? Which was I using in running my business – a map or a Swot?
The wrong one.
Situational awareness: a lesson from chess
So, given Sun Tzu’s five factors – purpose, landscape, climate, doctrine and leadership – I had somehow been jumping from purpose to leadership and missing three of them out.
I now knew that in strategy there were two very different forms of “why” that mattered – purpose and movement – and we weren’t even considering movement. While situational awareness is known to be critical in combat, for some reason it seemed absent in business literature.
In business, we had no maps of the environment, no visual means of describing the battle at hand, and hence no understanding of our context. Without maps, I didn’t seem to have any effective mechanism of learning from one encounter to the next, or even a mechanism of effective communication. The tools I was using were woefully inadequate in all regards.
But did it matter? Our results were positive, we were growing and we were making a profit.
I started to imagine the consequences of being unaware of the landscape. Remember, back in 2004, I had nothing to support my idea that situational awareness and topographical intelligence might be important in business. I decided to use the analogy of chess since a common metaphor in business publications is CEOs as grand masters playing a complex game.
I’m going to take you through the thought experiment that I went through. Imagine you live in a world where everyone plays chess and how well you play the game determines your success and your ranking in this world.
However, in this world, no one has ever seen a chessboard. All you’ve ever seen is something like Figure 2 (see below) – characters on a screen, and a list of moves made shown beneath them. You play the game by each player in turn simply pressing one of the characters, and each move being recorded.
Figure 2: Chess world
Both players can see what the other has pressed. White started with a Pawn – Pawn (w), Black countered with a Pawn – Pawn (b), and so on.
The game continues until a draw is determined or someone has won. Neither player is aware of the concept of a board nor that each of the characters may represent one of many pieces – for example, there are eight Pawns. However, this lack of awareness won’t stop people playing and some from collecting sequences of moves from different games.
With enough games, people will start to discover “magic sequences” of success. If you press Knight, I should counter with Pawn, Pawn and Bishop. Gurus will write books on the “Secrets of the Queen” and people will copy the moves of successful players. People will convince themselves they know what they’re doing and of the importance of action – you can’t win without pressing a character. All sorts of superstitions will develop.
Now imagine you are White, playing against someone who can see something truly remarkable – the board. I’ve shown this in the figure below.
Figure 3: Chess world vs the board
You have no idea that the board exists and can only see what is on the left-hand side, so you will almost certainly be shocked by the speed at which you have lost the game. You’ll probably scribble down Black’s sequence as a formula to reuse. Yet every time you play this opponent, no matter what you do, no matter how you copy them, you will lose and lose quickly.
You’ll probably start to question whether there is some other factor behind Black’s success. Maybe it’s the speed at which they press the characters? Maybe they are a happy person and somehow culture and disposition affects the game? Maybe it’s what they had for lunch?
To make things worse, the board provides Black with a learning mechanism to discover repeatable forms of gameplay, such as fool’s mate. Against such a player, you are doomed to lose in the absence of lucky breaks for yourself and some sort of calamity for the opponent.
As a young CEO, this started to feel rather disturbing. I had the sneaking suspicion that I was the player pressing the buttons without seeing the board. We were doing fine for now but what would happen if we came up against a competitor who could see the board? I’d be toast.
I needed some way to determine just how bad my situational awareness was.
Categorising situational awareness
I wanted to determine whether I understood the landscape of business or not. I put a map and a picture of a chess board side by side. What is it that made these maps useful?
The first, and most obvious, thing is that they are visual. If I am going to move a piece on a map, I can point to where it was and where it needs to go.
But navigation was not always visual. In 2004, pre-GPS, when people asked me the way, if they had no map I would give them directions in the form of a story – “Drive up the road, turn left, turn right, take the second turning at the roundabout”.
This use of storytelling has a long history and was the norm for navigation by Vikings. At different times, different cultures found maps to be more effective. When I looked at our strategy documents, all I could see was a story.
The second thing to note about a map is that it is context-specific – it relates to the battle at hand. You can learn from that context and how pieces move in it, in much the same way that you learn from games in chess. I knew that learning in both chess and military campaigns was different from what I was doing in business – perhaps this could tell me how?
To learn from a map, you need to know the position of components on it and where they can move to. Position is relative to something. In the case of a geographical map it is relative to the compass – this place is north of that – the compass acts as an anchor for the map. In the case of a chess board, the board itself is the anchor – this piece is at position C1.
This gave me six absolute, basic elements for any map: visual representation, context-specific, the position of components relative to some form of anchor, and the movement of those components. I’ve summarised this in Figure 4.
Figure 4 : Basic elements of a map
Unfortunately, every single diagram I was using to determine strategy in business lacked one or more of those basic elements. I had business process maps that were visual, context-specific and had position, but failed to show any form of movement – that is, how things could change.
Everything I had – trend maps, competitor analysis maps, strategy maps – was similarly lacking. I was forced to concede that I effectively had no maps.
In a high situational awareness environment such as playing chess, navigation tends to be visual, learning is from context-specific play, and strategy is based on position and movement.
By contrast in my business, navigation was storytelling, learning was from copying others’ secrets of success, and strategy was based on magic frameworks such as Swots.
I concluded my business had more in common with alchemy than chess. We were fighting in the dark, occasionally sending our business resources to fight battles they might never win, and every now and then getting lucky. I knew I needed some form of map to understand the landscape, to learn and determine strategy.
However, landscape was only one of Sun Tzu’s missing factors. What about the others?
Climate, doctrine and leadership
You can think of climate as the rules of the game. For example, you don’t send the navy into a storm any more than you would send troops over a cliff.
I had heard physicist Richard Feynman talk about how you could learn the rules of chess simply by observing the board over time. Maybe there were rules of business that I could discover if I could map the environment?
But climate is more than just the rules of the game; it’s also the opponent’s actions and how well you can anticipate the change. Unfortunately, without a map, I was stuck.
I turned to the next factor – doctrine, or the standard ways of operating. This, I thought, would be easy as it’s just the good practice of business.
I started looking into operational strategy and another of those blindingly obvious questions hit me. I was reading up on the great and good of business, the wise men and women who ran successful corporations, but how did I know they were wise? How did I know their practice was good? What if a lot of it was luck and outcome bias? This last is worth exploring more.
Take a normal six-sided dice. Imagine you have two possible bets: either one to five or the number six. Now, basic probability tells you to choose one to five. But suppose you choose this, we roll the dice, and the six comes up. Were you wrong in your choice? Was the person who bet on six making the right strategic choice?
If you didn’t understand basic probability, then on an outcome basis you’d argue they were right and maybe copy them. But roll the dice a hundred times and you will overwhelmingly win if you stick to betting on one to five. When we choose to copy another organisation, is it the right strategic choice or because of outcome bias? Am I copying Fannie Mae, Nokia and Blockbuster because of some deep strategic insight or because of their past success? Am I copying the wrong thing?
In military history, there are many moves that have been learned over time and copied from one battle to another – for example, flanking an opponent and suppressing or covering fire. These are context-specific – you don’t flank an opponent when an opponent isn’t at the point you’re flanking.
But there are also many moves that are not context-specific but more universally useful, such as training your soldiers to fire a rifle. In battle, you’d never hear a general shout, “OK, we’re going to use suppressing fire so start learning how to fire a rifle”. These universal approaches are our standard ways of operating, the doctrine that we follow.
But if I cannot see the landscape, then how do I know whether an approach is universal or context-specific? Just because a general won one battle by flanking an opponent, it doesn’t mean ordering my troops to flank our opponent is going to work. I can’t simply copy others even if they are successful because I don’t know if that success was due to them being wise or just plain luck, nor whether our context is the same.
Unfortunately, copying the wise men and women of business who had been successful was all that I had done.
I had heard other people say an approach they had copied had been unsuccessful, and others remark that it was their “execution that had failed”. But what if they had copied a context-specific approach in the wrong context? What if it was just the wrong thing to do, like betting on six? How would they know? How would I know?
Without maps we have no mechanism to learn about common patterns that affect our landscape, nor can we anticipate possible change, nor determine the why of movement. Without maps we can’t determine climatic patterns and we have no real idea whether a change in the market is caused by us or some other force.
If we can’t see the environment in which we are competing, we cannot determine whether a successful approach is universal or specific to that environment. If we can’t separate out what is context-specific and what due to leadership, then how do we determine what is doctrine and universally applicable?
The strategy cycle
I still felt clueless but at least I had found five factors that I wanted to use to fix our strategy, though I had no idea how to do this. Is there a strict order in which we move through these things? Is climate more important than landscape? Maybe leadership is more important than purpose? At least we had our purpose.
The best way I’ve found to think about this problem is through the game of paintball.
You start off with a purpose – maybe to capture the flag in a building. The next step is to understand the landscape and the obstacles in your path. A bunch of newbies will tend to charge out onto the field of battle without understanding the landscape. The consequences are usually a very quick game.
Assume you understand the landscape, then you might determine a strategy of covering fire with a ground assault against the target. You apply some form of doctrine, perhaps breaking into two small teams. Then you act.
Chances are that during the course of the game the climate will change – you will come under fire. At this point, doctrine kicks in again. The group leading the ground assault might dive for cover while the other group returns fire.
Now your purpose will change – perhaps to take out the sniper who is firing at you. You will update your map – even if it’s a mental one – noting where the sniper is, and form a new strategy. For example, one group might provide suppressing fire while the other flanks the opponent. And so you will act.
This example demonstrates three things. First, the process of strategy is not linear but an iterative cycle. The climate may affect your purpose, the environment may affect your strategy and your actions may affect all. Second, acting is essential to learning. Third, your purpose isn’t fixed, but changes as your landscape changes and as you act.
There is no core, it’s all transitional. Nokia’s purpose today is not the same as when the company was a paper mill.
I could see my last atom of business sanity disappear in a puff. I started to think about all those projects we had dismissed as not being core. What if they were, in fact, our future?
The best way I’ve found to cope with this cycle is through the work of the “mad major” himself – the exceptional John Boyd, who, to understand the process of air combat, developed the OODA loop: observe the environment, orient around it, decide what to do and then act.
In Figure 5 below, I’ve married together Sun Tzu and John Boyd to create a strategy cycle.
Figure 5 : The strategy cycle
Let’s recap where I was back in 2004. I had a purpose that wasn’t static despite my belief that it was. I was jumping from purpose to strategy, ignoring landscape, climate and doctrine. I was using storytelling to communicate with the entire group. I had no mechanism of learning. I was copying secrets of success from others combined with magic frameworks such as Swots and then acting on them.
Our strategy was a tyranny of action statements built upon gut feel and what was “core” without any inkling about position and movement. If there was a way to get things more wrong, I haven’t found it yet.
However, the company was doing well and the one thing I had in my favour was that I understood how little I knew about strategy.
I set out to fix this. The first thing I needed was a map.
Read all three extracts from Simon Wardley’s book on value chain mapping
- Making sense of executive strategy: In this first excerpt from his book, Wardley explains why business leaders need to understand the importance of maps for corporate strategy.
- Finding a path: In the second extract from his forthcoming book, Wardley explains how to draw a map to describe the changing nature of your business.
- Exploring the map: In the third and final excerpt from his book, Wardley explains how maps can determine future business strategy.