Strategic Dissonance

Robert A. Burgelman Andrew S. Grove

A
intent.

ligning corporate strategy and strategic action is a key top management responsibility. Such alignment is viewed by some as driven by the strategic intent of the CE who sets ambitious targets within a !" to #" year time hori$on% relentlessly develops the firm&s capabilities% and transforms the basis of competition in the industry to the firm&s advantage. ! 'his is an inspiring

view% to which many CE s no doubt aspire. But it is a view premised on top managers having e(traordinary foresight. E(traordinary foresight can% of course% always be assumed to e(plain successful strategies after the fact. But there is convincing evidence that it is very improbable in high)technology industries.# *f e(traordinary foresight is unavailable% how can top management make strategic decisions in high) technology industries+ ur answer to this central ,uestion is based on research concerning *ntel Corporation&s strategic evolution- as well as our analysis of more than a do$en case studies of ma.or players in the information processing and telecommunications industries./

Strategic Dissonance
ur key premise is that in e(tremely dynamic industries0 alignment between a firm&s strategic intent and strategic action is not likely to last. *nevitably% strategic actions will begin to lead or lag strategic

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Such divergences between intent and action cause 1strategic dissonance1 in the organi$ation. 2hile new strategic intent is necessary to lead the company out of strategic dissonance% our key proposition is that new strategic intent must be based on top management&s capacity to take advantage of the conflicting information generated by strategic dissonance. 3ot all dissonance% of course% is strategic. Companies continuously e(perience some level of dissonance

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as a result of routine disagreements and conflicts because no division of labor is ever perfect and no pro.ect ever unfolds e(actly as planned. Companies need managers precisely to mediate and resolve these sorts of frictions. Dissonance, however, is strategic when it signals impending industry or corporate transformation . 4ere are three e(amples from *ntel.
*n !56"% newly)founded *ntel Corporation introduced dynamic random access memory 78RA9: products in the market. 8RA9s replaced magnetic core memory as the standard technology used by computers to store instructions and data as they e(ecuted programs% and *ntel became the first successful semiconductor memory company in the world. 'hroughout the !56"s and early !5;"s% 8RA9s continued to be viewed as *ntel&s core business. 2hile the 8RA9 industry grew tremendously during that period% the onslaught of <apanese entrants caused *ntel&s 8RA9 business to be hurt by the late !56"s. By the end of !5;/% there was serious disagreement within the company regarding the importance of DRAMs in Intel's future. The disagreement had been latent for several years . *t was resolved when% during !5;/) ;0, Intel's top management completed the drawn out process of e iting from the DRAM business and reali!ed that Intel had transformed itself from a memory company into a microprocessor company. *n !55")5!% *ntel top management faced a strategic decision about what to do about the company&s R*SC architecture efforts. 8uring the !5;"s% a middle)level technical manager had developed the i;=" R*SC chip within *ntel and had con) vinced several higher)level managers of its commercial potential. 'he technical development had been somewhat surreptitious because it was sold to top management as the development of a co)processor for the i/;= chip but did in fact involve a stand)alone processor. 'he managers involved in the i;=" pro.ect launched a successful marketing effort and top management had little real choice but to adopt the i;=" as a new strategic product. Commercial success subse,uently slowed down in the face of the competition of a plethora of other R*SC chips. "ut large amounts of Intel's development resources had begun to flow to RI#$ architecture efforts and there had developed two camps within the company with different views about the future of RI#$ versus $I#$. After a protracted debate% top management% in !55!% decided to reaffirm its commitment to the (;=) C*SC architecture and to scale down the R*SC effort. *n 3ovember !55/% a flaw in the first release of the >entium microprocessor? a routine event associated with most first releases of new microprocessors to E9s?triggered a discussion among technical users on the *nternet which was picked up ,uickly by C33 and other news media. *ntel&s initial reluctance to replace the flawed chips% e(cept for those highly technical users that were likely to engage in mathematical operations that could be affected by the flaw% created an uproar and escalated the event into a full blown 1>entium processor crisis.1 2hile the national press hammered *ntel for not being forthcoming enough in replacing the flawed products with no ,uestions asked% *ntel&s E9 and distribution channel sales data indicated that demand for >entium processors continued unabated. After several difficult weeks of internal debate% *ntel top management decided to e(change all flawed >entium processors for new ones simply upon re,uest. By that time% *ntel&s top management had come to grips with the fact that *ntel&s prominence in end)user space% in part as the result of the *ntel *nside campaign started in April !55!% had dramatically changed the rules of the game for *ntel% and probably for all high)technology companies marketing to end) users.

Strategic Dissonance Signals a Strategic Inflection Point

A common thread running through these vignettes of strategic dissonance is that they signaled that *ntel had reached 78RA9 e(it% >entium processor crisis:% or was about to reach 7i;=" R*SC chip:% what we call a 1strategic inflection point1 7S*>: in its development. *nflection point has a rigorous mathematical meaning " but here we use it more loosely?metaphorically?to describe the giving way of one type of industry dynamics to another@ the change of one winning strategy into another@ the replacement of an e(isting technological regime by a new one. 'hese changes?witness the computer industry?create a 1valley of death1 6 for the incumbents because they materially affect their profitable growth tra.ectories. *f an incumbent&s top management is able to come up with new strategic intent that takes advantage of the new industry conditions% it can traverse the valley of death and enter a new era of profitable growth. therwise% it continues to survive with severely reduced performance prospects% or

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dies 7see Aigure !:. Bnfortunately% it is very difficult for anyone in an e(tremely dynamic industry% including top management% to clearly perceive the new industry e,uilibrium% winning strategy% or new technological regime% that loom beyond a S*>. 'hink about a computer)generated image being morphed from one state to another?you cannot tell when one ends and the other starts@ only the beginning 7old image: and the end 7new image: are clear. *n)between is a di$$ying succession of intertwined% overlapping% blurred% fu$$y images. #o, how can top management %now when dissonance is strategic& signaling a #I'&as opposed to a minor and(or transitory change in competitive dynamics, strategy, or technology) 4ow to tell signal from noise+ Sometimes the telling signs are ,uite obvious. Aor instance% in !5;/% every clear)minded senior manager in the telecommunications industry had to reali$e that <udge Green&s 19odified Ainal <udgement1 inaugurated a period of momentous change that would transform the competitive dynamics in the industry in ma.or ways. ; *n other instances% however% the telling signs may be subtle and intangible. Aor e(ample% after the <apanese had become powerful players in 8RA9s% *ntel managers visiting <apan would come back with the feeling that they were viewed with newly found derision?1Something changed@ it was different now%1 they would say upon return. *t took *ntel&s top management several more years to

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'ime

reali$e that the competitive dynamics% the winning strategy% and the key technological competencies in the 8RA9 industry had fundamentally changed. In the face of a #I', voices sounding danger ahead will emerge. These voices usually rise form the middle*management ran%s or from the sales organi!ation+ ,rom people that %now more because they spend time outdoors where the storm clouds of creative destruction gather force and&unaffected by company beliefs, dogmas, and rhetoric&start blowing into their face. Some will flag their concern to top management?and it&s wise to pay heed as it would have been very wise to give serious weight to the troubled comments of the *ntel travelers. ther middle managers will .ust ,uietly ad.ust their own work to respond to the strategic change. Aor instance% in the early !5;"s *ntel got down to ! factory out of ; manufacturing 8RA9s because the finance and production planning people 7middle)level managers: month) by)month allocated scarce capacity from where it seemed unprofitable to where it seemed to be more fruitful. ften% these words and actions don&t seem strategic at first glanceC they seem peripheral. But it is wise to keep in mind that when spring comes% snow melts first at the peripheryC 'hat&s where it is most e(posed.

The Need For Strategic Recognition

9anaging strategic dissonance re,uires 1strategic recognition1?the capacity of top managers to appreciate the strategic importance of managerial initiatives after they have come about but before une-uivocal environmental

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feedbac% is available. Top management's strategic recognition that the set of changing circumstances is a #I' happens in three %ey stages+ Drecogni!ing the growing divergence between what the company currently puts forth as its strategy and the actions ta%en by its managers&what we call here strategic dissonance, Das%ing the .an iety provo%ing/ -uestion 0is it one&a #I')0 and Dtrying to discern the newly emerging strategic picture and providing a framewor% in which the divergence can be combated and new strategic intent formulated. The method of resolution is broad debate, involving different technical, mar%eting, and strategic points of view, and representatives of different levels in the organi!ation. This ta%es time. Dealing with the

of the resilience of a company's culture and its leadership.

strategic dissonance associated with a #I' is a fundamental test industries.

Strategic dissonance% strategic inflection point% and strategic recognition are the three interrelated key concepts that answer the ,uestion of how top management can decide on strategic intent in high)technology

A Framework for Analysis

2e propose a theoretical framework of five dynamic forces5 that shape a company&s evolution and the emergence of strategic dissonance 7see Aigure #:. 'his framework can help top managers determine whether manifestations of dissonance are strategic andEor ask ,uestions that help surface latent signs of strategic dissonance. 'he first of these forces?the basis of competitive advantage in the industry? is determined by the industry factors identified by 9ichael >orter!" as key determinants of the attractiveness of an industryC bargaining power of customers and suppliers% the nature of the rivalry among incumbents% and the threat of new entrants and of substitution. 'echnological change% legislation% or government regulation can affect each of these elements and their relative importance. The second force concerns the company's distinctive competenceC the competencies that have made it possible to develop a competitive advantage and to survive. !! The third force is the company's official corporate strategy which reflects top management's beliefs about the basis of the firm's current success and anticipated changes in the familiar environment.12 The fourth force&strategic action&is what the company actually does. ,inally, the fifth force concerns the company's internal selection environment which mediates the lin% between corporate strategy and strategic action and the lin% between distinctive competence and the basis of competitive advantage. 'he internal selection environment comprises adminis* trative elements .e.g., resource allocation rules/ and cultural elements .e.g., norms governing internal communication/.13

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FIGURE 2. 4-!

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Sour'&6 R.A. #ur+&)m !, 7F "%!+ M&mor%&$6 A ,ro'&$$ T(&or- of Str t&+%' #u$%!&$$ E8%t %! 4-! m%' E!1%ro!m&!t$.7 Administrative Science Quarterly, 39. 1999

8uring some periods in a company&s history% these five forces are in harmonyC 'he company&s distinctive competence is consistent with the basis of competition in the industry@ its official strategy and the strategic actions of its managers are co)aligned@ and its internal selection environment is relatively peaceful with no signs of strategic dissonance. 'his was the case at *ntel in the early !56"s. *ntel had established itself as a leader in semiconductor memories by pioneering a new semiconductor process called metal)o(ide)silicon 79 S: technology. 'his process technology allowed *ntel to increase the number of transistors on a chip while simultaneously reducing its production cost. 'his% in turn% allowed *ntel to successfully introduce the world&s first 8RA9 into the market in !56". 2hile other companies% notably Advanced 9emory Systems% had been able to design a working 8RA9% they had failed to develop a process technology to manufacture the new device successfully in volume. >rocess technology became *ntel&s distinctive competence. 8uring the ne(t half a do$en years these competencies served *ntel to remain the dominant competitor in the 8RA9 business. 8uring that period% *ntel&s corporate strategy was to offer semiconductor memory chips as alternatives for mainframe computer memories% and this strategy guided *ntel&s strategic actions. 'he internal selection environment routinely allocated resources to semiconductor memories. ver time% however% the dynamic forces shown in Aigure ! tend to diverge and their harmonious relationships are broken% thereby creating strategic dissonance in the organi$ation.

Sources of Strategic Dissonance

Divergence of the Basis of Competition and Distinctive Competence
'he most fundamental and often least readily visible source of strategic dissonance derives from a divergence between the changing basis of competition in the industry and the firm&s distinctive competencies@

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the latter becoming less relevant for competitive advantage. 'his happened in *ntel&s 8RA9 business. *n the late !56"s% <apanese entrants used their large)scale precision manufacturing skills to obtain high yields early on in new 8RA9 generations% thereby outcom) peting *ntel% which had much weaker manufacturing skills. 4igh yields had great impact on unit cost% and this was a crucial advantage as 8RA9s became a commodity product. Companies often e(perience an inertial aftermath of success@ 'hey have become sharply aware of the competencies that made them successful against the initial competition and they continue to rely on these distinctive competencies even when the competition changes. Also% companies usually organi$e themselves in such a way that the employees representing these competencies are likely to have the greatest influence in the strategic decision)making process. Changes in the basis of competition thus often evoke inertial responses by incumbents.!/ *ntel&s 8RA9 business% again% provides an e(ample. Aalling behind the <apanese% *ntel tried to compete by creating advanced products based on the company&s strong process technology skills. >rocess technology had been the technological competency that had given *ntel its initial competitive advantage. >rocess technologists continued to play the dominant role in *ntel&s 8RA9 product development for the !=F 7kilobit:% =/F% #0=F% and ! 9eg 7megabit: generations% in spite of the industry)wide shift in the basis of competition toward manufacturing competence. n the other hand% strong technological competencies may also evolve in new% sometimes unanticipated% directions and provide the basis for generating new business opportunities. *mportant e(amples at *ntel are the invention of erasable programmable read only memories 7E>R 9s: and% even more so% the invention of the microprocessor. 'hese developments have strategic repercussions for the company&s e(isting core business and re,uire difficult top management decisions. 'he successful E>R 9 and microprocessor businesses soon began to compete with *ntel&s relatively weak core 8RA9 business for scarce manufacturing resources. Gater on% the increasingly strong microprocessor business also competed with the weakening E>R 9 business. 'his internal competition turned out to be advantageous for the company% transforming *ntel gradually from a lagging 1memory company1 into a leading 1microprocessor company.1 Evolving technological competence% however% may also create fundamental strategic dilemmas. 'he development of the i;=" R*SC processor at *ntel% for instance% threatened to undermine the company&s strong core microprocessor business based on the (;= architecture. *n sum% firm)level competencies and the basis of competition in the industry often evolve along independent paths. ur framework suggests that dynamically matching firm)level distinctive competencies and the basis of competition in the industry is a tough top management challenge. *t re,uires top management to closely watch the evolution of the industry structure as well as to be alert to the strategic implications of unanticipated new developments in the company&s competencies.

Divergence between Stated Strategy and Strategic ction

A second ma.or source of strategic dissonance% one that is usually more readily visible% originates in the divergence between corporate strategy and strategic action. ne driver of this divergence is inertia in corporate strategy.!0 Corporate strategy reflects top management&s beliefs about the basis of success of the firm. 'op managers usually rise through the ranks and are deeply influenced by their perception of what made the company successful. *ntel&s e(it from the 8RA9 business% for instance% was delayed by the fact that top management was still holding on to *ntel&s identity as a memory company% even though the company had become a non)factor in 8RA9s with #)H percent market share by !5;0. *B9&s slowness in taking advantage of the R*SC microprocessor architecture 7which it had invented in the mid)!56"s:lf- was% no doubt% attributable% at least in part% to top management&s perception of *B9 as the leading 1mainframe computer1 company in the world. Similarly% 9icrosoft&s relatively weak past strategy in networking operating systems probably was% in part% due to their corporate identity throughout the !5;"s as the 1desktop operating system1 company. *ntertwined with these inertial self)perceptions is emotional attachment on the part of top management to the business that made the

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company successful. As one middle)level manager put it in relation to *ntel&s e(it from the 8RA9 businessC 1*t was kind of like Aord getting out of cars.1!6 Gast% but not least% top management often hesitates to change the strategy because the conse,uences are not completely clear. Aor instance% *ntel&s slowness in moving away from defining itself as a memory company were% in part% due to the fact that 8RA9s were viewed as the company&s technology driver having been the largest volume product 7in units: historically. *f inertia in corporate strategy leads to change that is too slow% top managers can also change the corporate strategy too fast?in ways that stretch beyond what the company is capable of doing and the market is ready to accept. *n the early !55"s% Apple Computer&s CE <ohn Sculley was clearly in front of his organi$ation when he pushed the strategy of developing personal digital assistants 7>8A: and personally championed the 3ewton operating system. Sculley&s strategic intent stretched beyond Apple&s available innovative capabilities and the market&s readiness. At the same time% Apple was facing a ma.or battle in its core personal computer business after the barriers that separated the 9acintosh&s niche from the rest of the >C industry weakened in the face of the success of 2indows H.". Sculley&s ambitious strategy for >8As re,uired the development of new innovative capabilities while at the same time the demands of the >C business re,uired ma.or cultural change to achieve greater cost consciousness and discipline in product development. Apple could not do both% and Sculley&s strategic goals thus created enormous% top)driven dissonance within the organi$ation. !; 'he other driver of this divergence are the independent strategic actions taken by middle)level managers. 8uring the late !56"s and into the early !5;"s% *ntel&s new E>R 9 and microprocessor businesses began to compete with the 8RA9 business for scarce manufacturing capacity. As noted earlier% middle)level managers in manufacturing planning allocated scarce manufacturing to the new% higher margin E>R 9 and microprocessor businesses% thereby gradually diminishing the role of 8RA9s as *ntel&s core business. *n !5;/% another middle)level manager responsible for process technology development for static random access memory 7SRA9: and microprocessors made the crucial choice to support a new process technology that favored microprocessors and specialty memory products over commodity memories. !5 'his decision effectively decoupled the commodity memory business from the rest of *ntel&s business. *ronically% this move turned out to be beneficial after the new strategic intent 7*ntel the 1microprocessor company1: was formulated. 2hile some actions may turn out to be helpful% there is also potential danger associated with strategic actions of middle)level managers that diverge from the official strategy. 'he technical and initial commercial success of the i;=" R*SC chip as an unplanned stand)alone processor created a strategic dilemma for *ntel&s top management and e(tremely strong% eventually divisive% tensions within the organi$ation.

Role of the Internal Selection !nvironment

*f the basis of competition in the industry% the company&s distinctive competencies% the firm&s official strategy% and the strategic actions of middle) level managers all start diverging from each other% how can a company possibly survive+ Research suggests that in the face of a S*>% a company&s internal selection environment may be more important for survival than its stated strategy. #" 'he role of the internal selection environment is to regulate the allocation of the company&s scarce resources?cash% competencies and capabilities% and senior management attention?to strategic action while the official strategy is in flu( and new strategic intent has not yet been formulated and articulated. A company can continue to be successful for some time if its internal selection environment selects actions that are consistent with competitive reality

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even while becoming decoupled from the official 7stated or implicit: corporate strategy. 'he continued success provides then a time cushion for bringing corporate strategy back in line with strategic action. At *ntel for instance% the capacity allocation decisions favoring E>R 9s and microprocessors over 8RA9s were initially not driven by official corporate strategy. Rather% they were driven by the internal resource allocation rule?ma(imi$e margin)per)wafer)start?that favored products with greater profitability and hence greater competitive advantage in the e(ternal environment. 'he deteriorating competitive position of 8RA9s re,uired top management to make a fundamental strategic choice in !5;/C Stay in 8RA9s and invest several hundred million dollars to get on a par with the market share leader in a commodity market% or e(it from 8RA9s and concentrate key resources to become a leading microcprocessor company. 'his strategic choice was facilitated by the results of the internal selection processes which had already shifted the 1mainstream1 away from memories toward microprocessors. 'he internal selection processes leading up to the formulation of new strategic goals critically depends on top management&s strategic recognition capacity. ne type of strategic recognition involves top management&s ability to recogni$e the strategic importance of actions by middle)level managers who try to tie a new business initiative to the corporate strategy?providing legitimacy for the new business. Aor instance% the internal and e(ternal success of microprocessors eventually made top management reali$e that *ntel&s future lay with becoming a microprocessor company. A second type of strategic recognition involves top management&s ability to recogni$e the strategic importance of actions of middle)level managers that diminish the legitimacy of an e(isting business and decouple it from the corporate strategy. As an e(ample% the allocation of manufacturing capacity away from 8RA9s and the decision by a middle)level manager to give up a process technology that was important for commodity memory products eventually helped top management recogni$e that 8RA9s were no longer a core business for *ntel. #!

Managing Strategic Dissonance

Strategic dissonance% strategic inflection points% and strategic recognition are tools for managing the ma.or transformations that companies must bring about in the face of discontinuous change. As the company moves through the valley of death% the old and the new basis of competition% the old and the new distinctive competence% the old and the new strategy% and the old and new strategic action are all in play together. Aigure H shows a picture of the transformation process.## So% what are the characteristics of the internal selection environment and what are the top management behaviors that help a company take advantage of strategic dissonance and survive the turbulence of a S*>+

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%elp Internal Selection Reflect !&ternal Reality' llow Dissent

'op management must help ensure that the firm&s internal selection environment continues to reflect the real competitive pressures in the e(ternal environment. A necessary condition is that the company has a management information system that reflects how its businesses are really doing in the competitive environment. 'his allows top management to ask sharp ,uestions% on a regular basis% about why the company&s businesses are performing the way they are. *ntel&s rule to allocate scarce manufacturing capacity based on margin)per) wafer)start% for instance% forced the 8RA9 middle)level managers to come up with their best strategic arguments for why the company should forego profits by allocating scarce capacity to 8RA9s. Constantly watching competitors?old and new?is mandatory behavior for top management. 2hy are they strong competitors+ 2hat do they do that we cannot do better+ 'his is one set of ,uestions senior managers should ask. *n the 8RA9 case% for instance% *ntel top management should have asked why the <apanese new entrants into the 8RA9 industry seemed to be getting much higher yields in manufacturing from the start . *t is also important that the firm&s internal selection environment values dissent and controversy surrounding the interpretation of the data. 'his is difficult% because organi$ations are uncomfortable with internal dissent. 8ebating tough issues is only possible where people will speak their minds without fear of punishment. 'he debate between C*SC and R*SC at *ntel during !55")5! strained this ideal at *ntel. 'he debate became acrimonious at times@ different factions were beginning to engage in a civil war. >eople were voicing concernsC 14ow will * work for so and so when this is all over+1 'he 8RA9 crisis did likewise. A key role of top management is to provide an umbrella against such fears. 'op management may not be competent to personally .udge the issues but it is up to them to create a fear)free internal selection environment. So% our advice to top managers isC Airst% don&t shut people up@ and% second% if they disagreed and were right% congratulate themI

Don(t Dismiss Strategic Dissonance

A company&s capacity for getting through a S*> depends predominantly on a very human issueC 4ow the top management reacts% emotionally% to strategic dissonance. 'his is no surprise. Business people% like all people% have emotions% and a lot of emotions are tied up in the status and well)being of their business. *n spite of the best attempts at business and engineering schools to inculcate rational analysis% when the business gets into serious difficulties or key managerial assumptions are challenged% ob.ective analysis takes second seat to personalEemotional reactions. *n fact% the top managers in charge are likely to go through some variation of the stages of dealing with a catastropheC
8E3*AG )J ESCA>E or 8*KERS* 3 )L ACCE>'A3CE )L >ER'*3E3' AC'* 3

Denial is prevalent in the early stages of almost every instance. 'o appreciate this% read the annual report management letters of companies that% in retrospect% we know were facing a S*>. !scape refers to the personal actions of top managers. Aor instance% fre,uent public speeches on vague sub.ects given by CE s of companies facing difficult times or the move of corporate head,uarters away from the center of business action are signs of attempted escape. Diversion) by contrast% refers to the worst kind of escape% often involving ma.or ac,uisitions unrelated to the core business that faces a S*>. Effective top managers go through these first two stages as well% but they are able to move on to the acceptance and pertinent action stages before it is too late. *neffective top managers are unable to do so and have to be removed. 'hose that replace them are not necessarily more capable% but usually do not have the emotional investment in the current strategy. *n our view% replacement of corporate leaders in the face of a S*> is far more motivated by the need to put distance between the present and the past than by getting someone 1better.1 *ntel&s 8RA9 crisis became resolved when Grove went to sec CE Gordon 9oore and asked him what a new top management would

do if he and 9oore were replaced. 'he answer was clearC Get out of 8RA9s. Grove then suggested that 9oore and he go through the revolving door% come back in% and do it themselves?a forced way to put distance between present and past.

Form*late New Strategic Intent Based on Strategic Recognition

'op management must try to surmise how the new e,uilibrium of forces in the industry will look like and what the new winning strategy will be% knowing that they cannot get it completely right. Getting out of the valley of death associated with a S*> re,uires top management to develop a mental image of what the industry will look like and the company should look like when it climbs out on the other side. 'op management must use the information that is generated by strategic dissonance when trying to discern the true new shape of the company on the other side of the valley. *t must be a realistic picture grounded in the company&s distinctive competencies? e(isting ones or new ones that are already being developed. Aor instance% when *ntel finally got out of the 8RA9 business it had also become clear that the company had to be reconcep) tuali$ed as a microprocessor rather than a memory company. By that time% *ntel had moved from a silicon)based distinctive competence in memory products to a distinctive competence in implementing computer architectures in silicon chips. Coming out of a difficult period% top management is more likely to have a sense of what they don(t want the company to become before they know what they do want it to become. Aor instance% as middle)level managers in the 8RA9 business e(perienced difficulties in obtaining capacity allocations% they proposed% several times% that *ntel restructure itself and give 8RA9s their own manufacturing capability instead of sharing with other products. 'hese re,uests helped top management decide that they did not want *ntel principally to become a supplier of commodity type products. 'his decision was made before it was clear to top management that *ntel would become a leading microprocessor company. 9anagement writers use the word 1vision1 for this. But that is too lofty for our purpose. Geadership here implies changing with the environment and the organi$ation. Reality must lead top management rather than the other way around. 'his is difficult because top management is e(pected to have vision. Getting through the period of immense change re,uires reinventing?or perhaps rediscovering?the company&s identity. Since companies and their leaders are shaped by their past% this is truly hard. *f top management got its e(perience running a hardware company% how can they and their key staff imagine what it is to run a software company+ Steve <obs% for instance% must have struggled with that at 3eM'. *t is not surprising that it took many years before he was able to redefine 3eM' as a software company and got rid of the desire to produce esthetically pleasing% well)designed 1computers.1 'oday% *ntel is outgrowing its identity as a leading microprocessor company and faces the challenge of redefining itself as a company that wants to be a supplier of building blocks for the computing and communications industries.

#ove from Strategic Intent to Strategic ction

Seeing% imagining% sensing the new shape of the company is only one step. Getting there re,uires more wrenching actions. 'hese moves we have called strategic actions and they involve 7re:assigning resources in order to pursue the new strategic intent. 'he fact is% corporate strategy is reali$ed by performing a series of such strategic actions% and not via strategic planning. Strategic plans are abstract% far away% and give managers a lot of chances to reconsider as they go along?so% they don&t command the true attention their action)oriented counterparts do. Clearly% the wisdom necessary to guide a company through transformational changes cannot% as a practical matter% reside only in the head of the CE . *f it did% he or she would have guided the company through those changes in the first place. *f% on the other hand% the CE comes from the outside% chances are he or she does not really understand the evolving

subtleties in such situations. 9iddle managers have the hands)on e(posure% but% by necessity their e(perience is speciali$ed% not company)wide. 2hat is needed is real)time mining of the middle managers& insights% e(posing all that information to searing intellectual debate% and letting this ferment take place until the shape of the other side of the valley is sufficiently clear that a dedicated march in its direction is feasible. nce that starts% the ferment needs to stop% and all hands need to be committed to this new direction. 2e think% therefore% that there is an inverted)B type of relationship between the intensity and duration of constructive intellectual debate in a company and its long)term ability to manage through S*>s 7see Aigure /:. At one e(treme% too little intellectual debate means that middle managers do not challenge one another as long as the favor is reciprocated. 'he resultC A

FIGURE !. R&)

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lack of strategic dissonance and a hard fall off the curve. At the other e(treme% too much intellectual debate paraly$es the company because most energy is used up seeking to win the debate for the sake of winning rather than for the sake of the company. Strategic action is delayed indefinitely and% again% a hard fall off the curve. So% during strategic dissonance% top management must let go some while they are not sure. 7'his is not easyC top management is paid for being sureI: But then they must pull strategic action and strategy back in line and direct the march. Strategic leadership means encouraging debate and bringing debate to a conclusion. #H

Ta+e dvantage of the ,B*bble,

'op management must deliberately use the company&s uncommitted resources that accumulate in good times?what we call the 1bubble1?by responding to early signs of strategic dissonance and by supporting new initiatives before strategic dissonance emerges. 'his too is difficult% particularly so when the prospects of the mainstream business in the foreseeable future continue to be favorable 7abundant profits and growth e(pected : and everybody is very busy e(ploiting the e(isting opportunities. Senior and top management% under such circumstances% are likely to pay only lip service to supporting new initiatives@ it is easy to delay action to 1tomorrow.1 2hen the prospects are not so good% it is easier to take action. *n the early !55"s% Apple Computer had about N! billion in free cash% but the prospects of the mainstream >C business looked less good because Apple&s niche was not growing and was threatened by

9icrosoft&s 2indows H.".#/ 2hile the choice of strategic intent can be ,uestioned% <ohn Sculley deserves credit for anticipating the need for change in Apple&s strategy and starting the change process.

#anage -nanticipated Invention

2hile senior management should constantly look for ways to harvest the benefits of unanticipated invention generated by the company&s technological competencies% the first% and foremost% ,uestion should beC is this invention useful to our core business+ *f not% where could we use it+ *s the new area suggested by this invention of interest to us+ 8oes it make use of other competencies we have+ *mplicit in these actions of senior management is the will to terminate investment in areas that% after careful e(amination% do not fit the firm. 'his may sound cold% but the willingness to terminate e(periments has to be viewed as an integral part of the process of creating such e(periments. *f such will is lacking% eventually the weight of accumulated and undisposed of e(peri) mentation will dissipate the bubble and inhibit the start of new ones. #0

C*lt*re is the .ey

'he internal selection environment that we are describing is one in which there are both strong bottom)up and top)down forces. *f the company is dominated by the top)down force% chances are that it will efficiently march in lockstep toward an important strategic intent% but the strategic intent better continue to be the right one. *f the bottom)up force dominates% chances are that the company ONEill drift aimlessly from one limited strategic intent to another and dissipate its resources. bviously% if there is neither top)down nor bottom)up force% the company will e(perience something like 1Brownian motion.1 But how can these forces both be strong at the same time+ 'hey can% if the company has the rugged% confrontationalEcollegial culture that is desirable in high)technology industries. Such a culture has two attributesC Airst% it tolerates? even encourages?debate 7at *ntel% the name for it is 1constructive confrontation1:. 'hese debates are vigorous% devoted to e(ploring issues% and indifferent of rank. #= 'hey are focused on finding what is best for the company 7as opposed to the individual or group:. Second% it is capable of making?and accepting? clear decisions@ with the entire organi$ation capable of supporting the decision. An organi$ation that has a culture that appro(imates these two re,uirements is a powerful adaptive 7learning: organi$ation. 'his is the culture that works best when top management has to navigate between letting chaos reign and reining in chaos. Aor instance% there was enormous contention in the C*SC versus R*SC debate. 'here was rebellion within the 9icroprocessor Group against its management. After a period of e(hausting debate% everybody was ready for a clear new direction. 2hile a few people decided to leave% the adoption and e(ecution of the new direction unified everyone. ther companies that have survived in e(tremely dynamic industries by transforming themselves probably have a similar set of characteristics% even though they shape them in their own way. 4ewlett)>ackard% for instance% has such a culture 7.udging by the results:% perhaps more so than any other large company. 'heir history has been and continues to be a series of transformations% all achieved by 1peaceful means1 in the hands of internal management. 'o see this% compare their ability to move from instruments to computers 7and their growth spurt: with that of their ma.or competitors in instruments. 2hen computers moved from minicomputer) based technology to microprocessor)based technology% compare their performance with that of other minicomputer manufacturers. 4> made the transformation with hardly working up a sweat. *n recent years% 4) > has transformed itself again% becoming the world leader in desktop printing #6 and gradually working itself into a strong position in desktop computers. 4)>&s culture is more 1S*>)ready1 than any we can think of.

"onclusion
2e started this article by askingC 4ow can top management in e(tremely dynamic environments decide on the right strategic intent+ 2e have offered a conceptual framework and three interrelated key concepts?strategic dissonance% strategic inflection point% and strategic recognition?for answering that central ,uestion. ur conceptual framework helps e(amine the evolving linkages between a company&s distinctive 71core1: competencies and the basis of competition in the industry% and its official corporate strategy and strategic action. 'he research underlying our framework has revealed that% over time% there will unavoidably emerge divergences between competence and basis of competition% and between strategy and action. 2e view these divergences as natural outcomes of the internal and e(ternal dynamic forces that move and shake companies and industries. 2e also view the strategic dissonance that these divergences create as an opportunity for top management to learn about the changing reality of the competitive world that the company faces and the new opportunities generated by its own competencies. Strategic dissonance signals a strategic inflection point in the firm&s development tra.ectory and alerts top management to the fact that the familiar picture of the industry is being morphed into a completely new one?involving a fundamental change in the basis of competition% re,uiring fundamentally different competencies% or both. Strategic recognition is top management&s ma.or tool for dealing with strategic dissonance and a S*>. Strategic recognition picks out of the mass of conflicting information the elements that can form the foundation for new% viable strategic goals. 'op management&s capacity for strategic recognition is enabled in ma.or ways by the ability of the company&s internal selection environment to distinguish signal from noise. 'his% in turn% depends on the comprehensiveness% depth% and rigor of intellectual debate among middle and top managers% which is the cultural feature most telling of a company&s long)term ability to manage through S*>s.

3otes
!. Gary 4amel and C.F. >rahalad% Competing for the F*t*re 7Boston% 9AC 4arvard Business School >ress% !55/:. 'hese authors introduced the idea of 1strategic intent.1 See Gary 4amel and C.F. >rahalad% PStrategic *ntent%1 %arvard B*siness Review 79ayE<une !5;5:. #. A current e(ample concerns the impact of the *nternet on the computer and telecommunications industries. Aew of the key players in these industries foresaw the speed and force with which the *nternet has evolved during the last !; months. Aor a general discussion of the difficulty of foreseeing the implications of new technologies% see 3athan Rosenberg% 1Bncertainty and 'echnological Change%1 paper prepared for the Conference on Growth and 8evelopmentC 'he Economics of the #!st Century% organi$ed by the Center for Economic >olicy research of Stanford Bniversity% <une H)/% !55/. H. 'his research is reported inC Robert A. Burgelman% 1*ntraorgani$ational Ecology of Strategy 9aking and rgani$ational AdaptationC 'heory and Aield Research%1 /rgani0ation Science 7August !55!:@ Robert A. Burgelman% 1Aading 9emoriesC A >rocess 'heory of Strategic Business E(it in 8ynamic Environments%1 dministrative Science 1*arterly 79arch !55/:@ Robert A. Burgelman% 1A >rocess 9odel of Strategic Business E(itC *mplications for an Evolutionary >erspective on Strategy%1 Strategic #anagement 2o*rnal 7Special *ssue% Summer !55=% forthcoming:. /. 'hese case studies are used in our 9BA elective course 1Strategy and Action in the *nformation >rocessing *ndustry& at the Stanford Business School. Some of these cases were written at the Stanford Business SchoolC George 2. Cogan and Robert A. Burgelman% 1*ntel Corporation 7A:C 'he 8RA9 8ecision%1 !55"@ Bruce F. Graham and Robert A. Burgelman% 1*ntel Corporation 7B:C *mplementing the 8RA9 8ecision%1 !55!@ George 2. Cogan and Robert A. Burgelman% 1*ntel Corporation 7C:C Strategy for the !55"s%1 !55!@ 8an Steere and Robert A. Burgelman% 1*ntel Corporation 78:C 9icroprocessors at the Crossroads% !55H@ 8an Steere and Robert A. Burgelman% 1*ntel Corporation 7E:C 3ew 8irections for the !55"s%1 !55H@ Alva 4. 'aylor% Robert A. Burgelman% and Andrew S. Grove% , 3ote on the 'elecommunications *ndustry in !55H%1 !55/@ Alva 4. 'aylor% Robert A. Burgelman% and Andrew S. Grove% 1'he 2ireless Communications *ndustryC After A'Q')9cCaw%1 !55/@ 'homas Furian and Robert A. Burgelman% 1'he perating Systems *ndustry in !55/%1 !55/@ <effrey Skoll% 8avid Rinman% and Robert A. Burgelman% 1'he Consumer n)Gine Services *ndustry in !550%1

!550. ther cases% written at the 4arvard Business School% includeC 1'he Global Semiconductor *ndustry in !5;61@ 1'he Global Computer *ndustry@ 3ote on the >C 3etwork Software *ndustry% !55"1@ 19icrosoft&s 3etworking Strategy@ 9ips Computer Systems 7A:1@ 19otorola and <apan 7A:@ 'he 'ransformation of *B91@ 1Apple Computer !55#% and Reshaping Apple Computer&s 8estiny%1 !55#. 'hese are all published in 8avid B. Soffie% Strategic #anagement in Information Technology 7Englewood Cliffs% 3<C >rentice)4all% !55/:. 0. Aor a discussion of different types of dynamic environments% see <effrey 2illiams. 14ow Sustainable is Sour Competitive Advantage+1 California #anagement Review) H/EH 7Spring !55#:C #5)0!. Aor a discussion of the managerial challenges of operating in 1high)velocity1 environments% see Fathleen Eisenhardt% 1Speed and Strategic ChoiceC 4ow 9anagers Accelerate 8ecision 9aking%1 California #anagement Review) H#EH 7Spring !55":C H5)0/.

Str t&+%' 4%$$o! !'&

=. 6. ;.

9athematically% an inflection point is reached when the first derivative 7the slope of the tra.ectory: becomes $ero and the second derivative 7the rate of change: changes sign 7positive to negative or vice versa:. Andrew S. Grove% 1>Cs 'rudge out of the Kalley of 8eath%1 The 3all Street 2o*rnal) <anuary !;% !55H@ 1*nvest or 8ie%1 Fort*ne) Aebruary ##% !55H 7cover story:. 3evertheless% even in !550 it is by no means obvious what the new competitive e,uilibrium in the telecommunications industry will look like@ what the winning strategies and the dominant technologies will be. Aor instance% Bell Atlantic% one of the most aggressive regional Bell operating companies 7RB Cs: planning to diversify into delivering video and television services% abruptly called a halt to its plans in April !550. See 1Bell Atlantic 4alts >lan for Kideo Services%1 The New 4or+ Times) April #=% !550. Recently% A'Q' decided to split itself up into three parts? telecommunications services% telecommunications e,uipment% and computers? in order to be able to compete in a more focused way in each of these dynamic industries. ne reason for the split)up was that A'Q' e(perienced enormous strategic dissonance as the RB Cs% in anticipation of the deregulation of the local e(change business% were increasingly reluctant to buy telecommunications e,uipment from a potential ma.or rival.

5.

Burgelman 79arch !55/:% op. cit. Sociological

!". 9ichael E. >orter% Competitive Strategy 73ew Sork% 3SC Aree >ress% !5;":. !!. 'he concept of distinctive competence was first proposed by >hilip Sel$nick% 5eadership in dministration6 Interpretation 73ew Sork% 3SC 4arper Q Row% !506:. 8istinctive competence is similar to core competence% but emphasi$es the relative uni,ueness of the competencies that the company initially assembles and the evolutionary processes through which they evolve. As a result of these evolutionary processes% distinctive competencies have inertia and may become 1competence traps.1 See Barbara Gevitt and <ames 9arch% 1 rgani$ational Gearning%1 in 2. Richard Scott% ed.. nn*al Review of Sociology) !/ 7!5;;:C H!5)H/". Aor a discussion of core competence see C.F. >rahalad and Gary 4amel% 1'he Core Competence of the Corporation%1 %arvard B*siness Review 79ayE<une !55":. !#. See Robert A. Burgelman% 1A 9odel of the *nteraction of Strategic Behavior% Corporate Conte(t% and the Concept of Strategy%1 cademy of #anagement Review 7!5;H:@ Gordon 8onaldson and <ay 2. Gorsch% Decision #a+ing at the Top6 The Shaping of Strategic Direction 73ew Sork% 3SC Basic Books% !5;H:@ Farl E. 2eick% 1Substitutes for Corporate Strategy%1 in 8avid <. 'eece% ed.% The Competitive Challenge 7Boston% 9AC Ballinger% !5;6:. !H. Burgelman 79arch !55/:% op. cit. !/. Arnold C. Cooper and 8an E. Schendel% 1Strategic Responses to 'echnological 'hreats%1 B*siness %ori0ons 7!56=:@ 2illiam <. Abernathy% Fim B. Clark% and Alan 9. Fantrow% Ind*strial Renaissance6 Prod*cing a Competitive F*t*re for merica 73ew Sork% 3SC Basic Books% !5;H:@ 9ichael E. 'ushman and >hilip Anderson% 1'echnological 8iscontinuities and rgani$ational Environments%1 dministrative Science 1*arterly 7!5;=:@ Barbara Gevitt and <ames 9arch% 1 rgani$ational Gearning%1 nn*al Review of Sociology) !/ 7!5;;:@ Rebecca 9. 4enderson and Fim B. Clark% 1Architectural *nnovationC 'he Reconfiguration of E(isting >roduct 'echnologies and the Aailure of Established Airms%1 dministrative Science 1*arterly 7!55":@ 8orothy Geonard)Barton% 1Core Capabilities and Core RigiditiesC A >arado( in 9anaging 3ew >roduct 8evelopment%1 Strategic #anagement 2o*rnal 7!55#:. !0. 9ichael '. 4annan and <ohn 4. Areeman% 1Structural *nertia and rgani$ational Change%1 merican Sociological Review 7!5;/:@ 4enry 9int$berg and <ames A. 2aters% 1'racking Strategy in an Entrepreneurial Airm%1 >eter 4. Ariesen with the collaboration of 4enry cademy of #anagement 2o*rnal 7!5;#:@ 8anny 9iller and

CALIFORNIA MANAGEMENT REVIEW VOL 38, NO. 2 WINTER 1996

Str t&+%' 4%$$o! !'&

9int$berg% /rgani0ations6 !=. !6. !;. !5. #". #!. ##.

1*ant*m 7iew 7Englewood Cliffs% 3<C >rentice)4all% !5;/:.

Sec for instance 19ips Computer Systems%1 in Soffie 7!55/:% op. cit. Burgelman 79arch !55/:% op. cit.% p. /!. See 1Reshaping Apple Computer&s 8estiny !55#%1 in Soffie7 !55/:% op. cit. See 1*ntel Corporation 7A:C 'he 8RA9 8ecision%1 Stanford Business School case >S)B>)#0=% p. !". See Burgelman 7August !55!: and 79arch !55/:% op. cit. 'heses two processes are called 1strategic conte(t determination1 and 1strategic conte(t dissolution%1 respectively. A vivid e(ample from the late !5th century concerns the transition from wind to steam as the dominant means for

See Burgelman 7!55=% forthcoming:% op. cit. powering ships. Aor a while% some ship builders produced hybrids featuring both sails and steam engines. See R. 3. Aoster% Innovation6 The ttac+er(s dvantage 73ew Sork% 3SC Summit% !5;=:. 'oday% in the face of uncertainty as to whether '89A or C89A will become the dominant technology in cellular telephony% some telecommunications companies are planning to bring out cellular phones that embody both technologies. #H. 2e think that strategic recognition and strategic leadership must meet the tests for 1statesmanship%1 put forth by 4enry A. Fissinger. Fissinger writesC 1'he ultimate test of statesmanship...is a combination of insight and co*rage Temphasis providedU. *nsight leads to assessments that define a society&s freedom of action% while courage enables the statesman to act on his convictions before they are generally understood. Great statesmen operate on the outer margin of their society&s capabilities@ weak statesmen tend to be overwhelmed by events.1 See 4enry A. Fissinger% Review of 1ChurchillC 'he Bnruly Giant1 by 3orman Rose% The New( 4or+ Times Boo+ Review) <uly !=% !550% p. 6. #/. #0. #=. See 1Reshaping Apple Computer&s 8estiny !55#%1 in Soffie 7!55/:% op. cit. Aor an assessment framework% see Robert A. Burgelman% 18esigns for Corporate Entrepreneurship in Established Andrew S. Grove% %igh /*tp*t #anagement 73ew Sork% 3SC Random 4ouse% !5;H:@ Andrew S. Grove%

AirmsE California #anagement Review) #=EH 7Spring !5;/:. 1Breaking the Chain of Command%1 Newswee+) ctober H% !5;H. 'here is some useful social science literature on the ,uality of decision making in teams with dissent. ne line of in,uiry concerns the role of minority views in increasing group performance. 'here is evidence that distinct minority points of view help generate novel solutions that lead to improved group performance. See% for instance% Charlan 3emeth% 1Style without Status E(pectationsC 'he Special Contributions of 9inorities%1 in 9urray 2ebster and 9artha Aoschi% eds.. Stat*s 8enerali0ation6 New Theory and Research 7Stanford% CAC Stanford Bniversity >ress% !5;;:. Another line of in,uiry concerns the use of conflict as a means lor improving decision effectiveness. 'wo techni,ues for introducing conflict in decision processes are 18evil&s Advocate1 and 18ialectical *n,uiry.1 8evil&s Advocate involves assigning an individual or group the task of critici$ing a particular course of action. 8ialectical *n,uiry involves creating a debate between opposing views. See% for instance% Richard A. Cosier and Charles R. Schwenk% PAgreement and 'hinking AlikeC *ngredients for >oor 8ecisions%1 cademy of #anagement !&ec*tive 7Aebruary !55":. 9uch of this research% however% is based on e(periments involving students in contrived settings. A study of how Gyndon <ohnson used George Ball as 1devil&s advocate1 in top)level government decision making during the Kietnam war to isolate and defuse% rather than to integrate% a different point of view suggests the potential pitfalls of some of these techni,ues. See *rving G. <anis% 7ictims of 8ro*pThin+ 7Boston% 9AC 4oughton 9ifflin% !56#: and *rving G.

CALIFORNIA MANAGEMENT REVIEW VOL. 38. NO. 2 WINTER 1996

2;

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2anis and 5eon #ann) Decision #a+ing6 Press) :;<<=>

Psychological nalysis of Conflict) Choice) and Commitment 9New 4or+) N46 Free

14ow 4)> Bsed 'actics of the <apanese to Beat 'hem at 'heir Game%1 The 3all Street 2o*rnal) September ;% !55/.

CALIFORNIA MANAGEMENT REVIEW VOL 38, NO. 2 WINTER 1996