TechFuture’s approach to building a regional technology strategy for Northeast Ohio has been to gather together a portfolio of strategies representing the different approaches, philosophies, agendas and interests of a diverse number of groups that are working to improve northeast Ohio’s economy. This is far from the standard approach to developing a strategy. But, as Eric Beinhocker points out in The Origin of Wealth:

“The standard approach to strategy…hinges on two fundamental assumptions: first, that one can make confident predictions about what strategies will be successful in the future, and second, that one can make strategic commitments that will result in sustainable competitive advantage. Companies invest billions of dollars on the back of these assumptions every day. Unfortunately, both are wrong….All competitive advantage is temporary. Some advantages last longer than others, but all sources of advantage have a finite shelf life.”

Beinhocker goes on to note that one side of his bookshelf is filled with books about successful companies with strategies that should be emulated; the other side is filled with books focusing on companies that failed, and what brought them down. The irony, of course, is that the same companies are the subjects of the books on both sets of shelves—IBM is lauded for its pursuit of excellence in the 1980’s but by the 1990’s the company “blew it….Apple has traversed the full length of the bookshelf, starting off as a young up-and-comer, moving into ‘excellent’ territory, the shifting to ‘blew it’ and now has moved back to the ‘excellent’ side with its recent successes under Steve Jobs.”

If this cycle sounds familiar, it should: it is very much the same cycle identified by the 150 participants in the original TechFutures workshop that lead to our four scenarios: Shift Happens, Winner Takes All, Big Daddy, and Generation Q.

Beinhocker goes on to suggest that it is not companies that innovate, but markets. He cites two major studies of nearly 7000 companies across 40 industries that showed “only 5% of companies…ever achieved a period of superior performance lasting ten years or more…less than 0.5% made it 20 years, and only three companies [0.04% in the study] sustained high performance to the fifty-year mark.”

It is a seemingly counterintuitive idea–this notion that companies don’t innovate, markets do. And yet we’ve seen this phenomenon for ourselves in Northeast Ohio. Companies have come and gone, while markets have continued to evolve and grow. NorTech, in its emphasis on building industries not companies, comes tantalizingly close to this same conclusion—one hinted at in the emphasis on the importance of starting with global market drivers in its report, Navigating the New Realities of the North Shore—yet it is so counterintuitive that we haven’t yet expressed it so boldly or accurately as Beinhocker has. Specific companies are just part of the “organizational ecology” of markets that are constantly changing and innovating. The observation made by researchers at The Federal Reserve Bank of Cleveland that a sign of a robust economy is one where there are both a high number of business starts and a high number of business stops supports this idea, too.

What, then, are the implications both for individual company strategies as well as for a “regional” technology development strategy? It is to look upon strategy as a portfolio of experiments that result not in some “master plan for the future” but rather create prepared minds, ably to respond more nimbly to dynamic, always changing conditions.

Many people think Microsoft “bet the farm” in its shift from MS-DOS to Windows, but in truth the company pursued at least six different strategic experiments simultaneously, not knowing which one—if any—would wind up winning in the end. Those who are old enough to remember will recall that the original release of Windows was deemed an abysmal failure. Yet rather than giving up, Gates continued to invest in the product. At the same time he also continued investing in MS-DOS, which most pundits had written off (accurately, as time would prove) as destined for the dustbin. As Beinhocker recalls, “Microsoft saw IBM as the real threat…Gates and IBM agreed to turn IBM’s OS/2 operating system into a joint venture. [“Keep your friends clos, but your enemies closer.”]. Microsoft also entered into discussions with AT&T about “participating in joint ventures on Unix” and, of course, the company kept a hand in the applications space. All efforts were part of a portfolio of strategic experiments that allowed the company to move more quickly as markets dictated. Microsoft’s recent announcement about teaming up with Novell on Linux is nothing more than yet another experiment in the portfolio.

“The key to doing better,” according to Beinhocker, is to “‘bring evolution inside’ and get the wheels of differentiation, selection, and amplification spinning within a company’s four walls [or a region’s four corners]. Rather than thinking of strategy as a single plan built on predictions of the future, we should think of strategy as a portfolio of experiments, a population of competing Business Plans that evolves over time.”

And so, in the coming months, look for some changes here at TechFutures, as we work to evolve the portfolio of Action Plans received from various groups and work to move them towards a Portfolio of Strategic Experiments…