An Obsession with Strategy Is Killing Bank Innovation

In today's corporate world, one would be hard pressed to find a word more frequently used and abused than "strategy."

Corporate executives, particularly at financial firms, love to talk about, think about and pay for strategic advice. As described in Walter Kiechel's Lords of Strategy, since the "strategy revolution" of the 1970s, companies have grown enamored of strategy as a means to improve their business. Given the rise of strategy and its many derivatives (e.g. strategic planning), a casual observer could be forgiven for posing the obvious question: what do companies have to show for all of this planning? The track record of strategic change and transformation efforts certainly leave much to be desired.

Although not quite as in vogue as strategy, innovation ranks a close second in the eyes of many executives as a means of business improvement. While strategy and innovation are commonly cited as related, or even the same, the two ideas are philosophically opposed. Strategy is fundamentally an exercise in forecasting and planning. In theory, a superior strategy should improve the odds of success by analyzing multiple outcomes, weighing contingencies and countermeasures and implementing a rigorous analytical framework. The more robust and forward-looking the strategy, the more complex the analysis.

A true champion of innovation would stand in strong opposition to strategy. Strategy involves assumptions and models to approximate reality. Innovation uses reality to test assumptions and models. Innovators use the failure of their actions as a data point for future revisions; strategists attempt to explain the failure of their models. Planning is an attempt to insulate against randomness; innovation benefits from it. Strategy is Queensbury rules; innovation is no holds barred.

At the center of virtually every story of innovation is a list of failures, which preceded the breakthrough. After numerous attempts to create the light bulb, Thomas Edison famously stated, "I have not failed. I've just found 10,000 ways that won't work." Not only is the existence of failure important, the types of failure are equally, if not more, important. Experiencing small failures early on (recoverable) can help avoid large failures in the future (catastrophic). Innovation requires the ability to tinker, test, break and repeat.

But what of strategy? Surely the same brilliant minds, or other ones, could improve the odds of success through a more analytical approach? This is wishful thinking at best. Strategy and its close derivatives increase and delay the cost of failure. Business cases, focus groups, market analysis, roadshows, etc. divert resources (financial and human) and defer action.

It is interesting to note that prior to the adoption of the word for business use, "strategy" referred exclusively to the planning of combat operations with the goal of creating an asymmetrical advantage. However, even in the process of stealing from the language of combat, the concept of expecting and adapting to failures is crucially missed. Prussian military strategist Helmuth von Moltke, famously wrote that "no plan of operations extends with any certainty beyond the first contact with the main hostile force." Strategy is important, but be ready to adapt your tactics to the fight. The corporate obsession with strategy has turned anything "tactical" into a four-letter word.

There has been a growing chorus of economists, entrepreneurs and venture capitalists lamenting the death of "big" innovation. In the words of Peter Thiel, the co-founder of Founders Fund and PayPal, "We wanted flying cars, instead we got 140 characters." With superior financial, mental and physical resources, corporations should be factories of innovation. Why isn't this the case?

The rise of strategy has shifted many of the best and brightest from innovation and execution to strategy and planning. In the corporate world, there are few areas that confer the same level of automatic prestige, authority and often compensation, as strategy. Imagine the invention of the light bulb in the age of strategy. How many failures would Edison have been granted before the company scrapped the project? Would Edison have ever tried, or would he have taken a prestigious job on a planning board? It is hard to see how the light bulb would have ever been more than a footnote in the history of human folly.

If innovation has been killed, strategy is the culprit. In an attempt to improve our odds for success, we have eliminated the possibility of it. The time for the anti-strategy revolution is now.

Norbie Schickel is managing director of The Gryphon Groupe, a financial services consultancy.