The notion that organisations need a clear, guiding strategic principle (or ‘north star’) has been around for many years. For example, as far back as the 1970s management guru Peter Drucker stressed the importance of defining carefully the business you are in.
This article by McGrath – entitled ‘The Power of Strategic Centering‘- gives a thoughtful, updated reframing of the notion, to suit today’s business environment, even if the core idea is not exactly new.
The Columbia Business School professor argues that many of the traditional foundations of corporate strategy are becoming less useful as economies shift from being driven by physical assets to more intangible ones (such as software, intellectual property, brand equity, organisational capabilities). In such a world (what she calls a “dematerialized” world), competitive advantage is more fluid, industries overlap and companies face a constant stream of new opportunities.
Rather than rely on conventional positioning or recognised industry boundaries, organisations need what McGrath calls a “strategic centre” – a single, coherent organising principle that guides decisions about opportunities, resource allocation and identity.
The article illustrates this idea through several examples of companies confronted with difficult strategic choices.
McGrath argues that having a clear centre enables leaders to prioritise opportunities that align with their organisation’s long-term direction rather than defaulting to safer or more familiar investments. A strategic centre also usefully reduces internal politics and strategic ambiguity.
She proposes a taxonomy of five broad types of strategic centering:
a) Mission-centred::- Organising around solving a specific type of problem or fulfilling a specific, broader purpose.
b) Customer-centred:- Defining the organisation primarily around a specific definition of customer types that it serves.
c) Technology-centred:- Building strategy around distinctive technological capabilities
d) Eco-system-centred:- Creating value by developing and orchestrating networks of complementary participants
e) ‘Friction-erasure’ centred:- Focusing on making customers’ lives easier, more efficient or less complex or painful.
A central theme is that strategic centering is not about becoming rigid or inflexible or narrowing innovation. Instead, it creates coherence, enabling organisations to pursue a wide range of opportunities that reinforce their chosen centre, whilst at the same time avoiding distractions that would dilute focus. Companies with a clear centre can thus move more quickly, co-ordinate more effectively and adapt more confidently as makets evolve.
McGrath concludes that in an era where intangible assets account for most corporate value and traditional strategic anchors are weakening, choosing and committing to a strategic centre is one of the most important responsibilities of senior leadership.
Not a radical idea. More of an updated synthesis of previous views on strategy.
McGrath’s framework, in my view, is a welcome, useful approach for helping organisations think about strategy-making to suit today’s world. It is actually an interesting evolution of how strategic thinking has developed and been written about over the last sixty years or so in terms of addressing the fundamental question for any business – how should it define itself and compete or distinguish itself in its chosen market(s)?
For example, pioneering management writer, Peter Drucker, fundamentally asked “What is our business? Who is the customer? What value do we create?” Prof. Michael Porter asked ‘How do we achieve a sustainable competitive advantage?” Jim Collins asked (in his book ‘Good to Great‘) “What can we be uniquely great at?” Richard Rumelt asked (his book ‘Good Strategy/Bad Strategy) “What is the critical challenge, and what coherence policy can address it?” And Simon Sinek (his book ‘Start with Why‘) asked “Why do we exist?”.
These earlier writers developed their ideas in times where industries were relatively stable. In contrast, McGrath has spent much of her career writing (for example, her book ‘The End of Competitive Advantage‘) relating to the conditions of uncertainty and technological change facing many modern markets and the need for more consideration of ‘transient’ advantage.
But the essence of her focus still revolves around the same core question – she just emphasizes change more and asks ‘Given constant change, what should remain as the core – the centre – of what our organisation is about and our decison-making?’
She assumes the environment is inherently fluid, so the challenge for senior leaders becomes maintaining coherence whilst continually adapting. Seems very wise to me!
Many organisations don’t fail because they have a poor strategy – they fail often because they have too many possible strategies they could select! New opportunities are seemingly emerging all the time – a new technology here, a new customer demand pattern over there!
Without a clearly defined strategic centre, leaders can end up saying “yes” too often, and the organisation then becomes strategically ‘scattered’ and gradually loses is distinctive identity.