“…firms have shown in the recent past an unfortunate tendency to plunge rather than probe.”
Igor Ansoff, Corporate Strategy
Igor Ansoff was one of the fathers of business strategy. He wrote that sentence in 1965, but it is just as relevant today as it was then. He was of course referring to the fact that many (if not most) companies tend to plunge into major strategic changes without necessarily knowing what they're getting into. It's how we end up with waves of mergers and acquisitions, investment bubbles, and various other manifestations of economic, financial, and business herding.
The damn the torpedoes approach often works if you're first into a new sector, but how do you know if you're first? How do you know if what you're trying will work? What if you're an established player with profitable businesses? Should you just drop those and wander into a new sector? What if you don't know enough to make informed decisions about the future?
Doing nothing or adopting an overly defensive attitude is obviously ineffective in the long run. But so is plunging headlong into enemy territory. Is there a responsible and practical middle ground? I believe there is. It involves advancing like a military force, all the while probing with caution, ready to reinforce success and exploit breakthroughs.
What are the principles of probing?
You learn more by moving and trying things than by staying put. The impulse is to stay put and defend your position when you don't know where to go or what to do. Unfortunately, that leaves you open to rapid change in the market and competitive threats. Moving gradually into a new market or a new product or service category gives you time to learn and adjust your approach without overinvesting at the beginning. You also get to pull back if you've made a mistake or misjudged the situation, which can happen quite often.
Advance on a wide (or wider) front. You're better to send scouting parties to report back on the lay of the land and the enemy's positions and then to follow up with more forces if you're getting through. In business, this can mean trying many different small “experiments” with new products or markets to see what will happen, and then keeping those that are succeeding.
Don't put all your eggs into one basket. If you can't make accurate and timely predictions, and you don't know what will succeed in the long run, then it stands to reason that you need to diversify your investments and your assets. This doesn't mean you need to become a conglomerate. It is preferable to experiment in a controlled manner at the edges of the business while using profits in existing business lines to fuel that exploratory work.
Always cover your moves. When I was a young infantry officer, we were taught to cover our moves with a firebase that could provide support in case we came under enemy fire. The same applies in business. It's better to move gradually over time into a new market or with a new strategy by small steps. This might appear too slow for some, but this can be done remarkably quickly if you keep up the pressure by making incremental changes in a deliberate and consistent manner.
Reinforce success with backup forces. To follow up with the military analogy, once you have made it through the enemy's front lines, you pour in resources to reinforce the initial breakthrough. The same applies with your experimental business efforts. If you're having success with one or a few of them, you can put in new resources or transfer them from existing business lines so you're better positioned for the future.
Maintain reserves to exploit success. All of these principles require some level of resources, first to experiment, and then to reinforce success by investing in the winners. This requires the maintenance of cash reserves or access to capital, either from an existing business line, through borrowing, or from new investors.
This idea of probing rather than plunging is, in my opinion, one of the most powerful things that a company can do to remain relevant to the market over time. It's a way of merging the need for offensive strategy by seizing and maintaining the initiative, while also keeping a certain defensive stance as a precaution. In other words, probing is the essence of prudent risk-taking.Back to newsletters