Four Ages of Strategy

It’s the start of a new academic year, and I’ve been thinking a lot about volatility and uncertainty. Developing strategy in an uncertain context is the challenge underlying my doctoral research on games and scenario planning: with the third of four taught modules for my doctorate coming up later in the month, and what is becoming a perennial feeling of not having done enough work for it, I’ve been trying to catch up on my reading. But even without that academic focus, just looking at the world around me this summer brought the subject home. Many of my clients experienced disruption to supply chains and operations during the Covid-19 pandemic; most are now contending with serious inflationary impacts. My current projects involve business partners on five continents, and talking to them, some level of political instability is a consistent theme. Even going on a family holiday, our first time out of the UK in two and a half years, raised uncomfortable questions about the state of world and sustainability, as we travelled against the backdrop of heatwaves and wildfires at home and devastating floods overseas.

Two very different pieces that I’ve read in the last week continued the theme. The cover story in the new Harvard Business Review is a piece by two Bain partners, Michael Mankins and Mark Gottfredson, Strategy-Making in Turbulent Times, which presents a framework for strategy as a dynamic, continuous process. The authors confidently conclude that companies that follow their advice “will pull ahead—and stay ahead—in the coming decades.”

There’s a lot about the article that I really liked: interesting case studies from a range of corporations and sectors, the emphasis on defining extreme but plausible scenarios which produce breakthrough insight rather than incremental thinking, the importance of experiments, and a very clear boxout on drivers of unpredictability. An especially good section addresses strategic trigger points and signposts, and how the latter need to be revised dynamically as Rumsfeldian unknown unknowns move to known unknowns, using the Russian invasion of Ukraine as an example (incidentally, it also reminded me of this excellent piece on US retailer H-E-B’s early-pandemic response). It is all logical, clearly presented, and yet as a prescription for decades of action, with the summer of 2022 as a baseline, it didn’t seem to go quite far enough.

That missing piece in my thinking became clearer to me after reading an extract in the Guardian from Douglas Rushkoff’s new book, Survival of the Richest . (Note that I am writing this post before publication of the book, which I’ve not read, so my comments related to the extract only). Rushkoff describes a meeting with a group of billionaires seeking his advice on their personal contingency plans for life after a societal breakdown. Taken at face value it is an entertaining and occasionally chilling article, as some of the richest and most powerful individuals on the planet grapple with the second and third order consequences of the system that made them wealthy. What’s the value of money or assets absent a market for them? How do you balance the security of a remote shelter with the need for reliable access to staple goods and the renewal of infrastructure? How do you stop the elite security guards you’ve hired to protect you from turning on you? (Although as Rushkoff notes the magnitude of the current crisis may be unprecedented, none of these questions is entirely novel: for example, the billionaires could do worse than read Machiavelli, who has plenty to say on the loyalty and motivation of mercenaries).

Towards the end of the piece, Rushkoff uses the same Rumsfeldian framing as Mankins and Gottfredson to conclude that the known unknowns in the billionaires’ survival plans are enough to render them moot: he characterises their mindset as wanting “to build a car that goes fast enough to escape from its own exhaust.” But this brings up a fundamental question for Rushkoff: surely these highly-motivated individuals with access to the best advice and resources must realise the futility of that exercise? One possible explanation is to return to the framework from which known unknowns is taken.

“As we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns—the ones we don’t know we don’t know… it is the latter category that tends to be the difficult ones.”

Donald Rumsfeld

In his response to a question at a 2002 Pentagon press briefing, Donald Rumsfeld set out three states: known knowns, known unknowns, and unknown unknowns. Logically, there is a fourth element that doesn’t appear in the original quote: the unknown known. Rumsfeld later defined this as things that you know but don’t know you know. Writing about some of the enormities that took place on Rumsfeld’s watch, the philosopher Slavoj Žižek proposed an alternative: the things we know but deny we know, even if they are an integral part of our values—or, I suggest, in the example at hand, our situation and strategy.

Thus for the billionaire preppers, the knowledge that they are stuck on this rock with the other 7.9 billion of us is the unknown known. It’s easier to spend the money to pursue an unrealistic strategy than to acknowledge unpalatable alternatives. If billionaires are capable of this, what about other business leaders? Since reading this piece, I’ve often thought about oil and gas executives who were aware of the science on anthropogenic climate change since the late 1970s: greed is a simple and banal explanation for their behaviour, but I wonder if this sort of deeper cognitive bias is also in play.

In terms of wider applicability, I wonder if one could (roughly) map Rumsfeld’s four states on to the evolution of business strategy. The first age of business strategy, early to mid twentieth century, is the era of the known known and Frederick Winslow Taylor: the dominant strategic questions are based on the focal organisation and data that is at hand. The second age runs from the post-war period through to the Internet boom: the dominant strategic questions are based on what firms know they don’t know—or can be persuaded they don’t know. Entire industries such as management consulting and ERP spring up to answer those questions. In the third age, starting with the Internet boom, the dominant strategic question was the unknown unknown—in particular, disruptive innovation from tech startups/online platforms.

Speculatively, against a backdrop of pandemic, war, disrupted supply chains, authoritarian politics, public distrust in institutions and the climate crisis, might the dominant strategic questions in a fourth age of business strategy be based on unknown knowns? The tensions are certainly acute, and there are plenty of examples where short term profit maximisation seems inconsistent with long term prosperity. What sort of time horizon would be required to realise this sort of strategic thinking, and is that compatible with corporate ownership structures? In practical terms, how would an organisation begin to question its biases? If the question is not asked explicitly, is it likely to be answered at all? In fairness to Michael Mankins and Mark Gottfredson, a rigorous scenario planning process aimed at extreme but plausible scenarios of the sort that they recommend could perhaps surface these sorts of unknown knowns, though their article does not reference this fourth state. Perhaps a red team commissioned by a preternaturally far-sighted and independent board?

Boiling this all down to one question: given the current state of the world, is it valid to think about long-term strategy if an organisation hasn’t addressed its unknown knowns?

I’m at the earliest stage of thinking about this, and this post is in a spirit of thinking in public rather than anything like a researched or refined concept. I’d welcome comments, constructive criticism and suggestions for further reading.

4 responses

  1. I’m not sure the connection to the four Rumsfeldian quarters works, or works as well as you imply, but there’s certainly enough there to warrant analysis.

    I would say businesses are partly in that fourth state, of having “unknown knowns”; but I see that as organisations coming to realise how much data they already have and what they can do with it – so from a little reading around, I think I agree with Rumsfeld’s definition of “unknown knowns” as “things that you know, that you don’t know you know”, rather than Zizek’s definition. Organisations are coming to realise they can understand their current assets, or security risks, or potential customers, or lost customers, through better aggregation and analysis of data they already have, but they need to turn that data into information and then knowledge.

    Beyond that, I can only confidently say “I don’t know”. It depends on quite what definitions you’re using, but I think for business strategy to consider how competitors might react, how business context might change, how actions will incur ecological changes… maybe rather than neatly going to “unknown knowns”, business strategy needs to move straight to where it appears you are – in defining the four quadrants of the Rumsfeld Matrix, and determining what should be in each of them.

    (also, as always, bouncing off the HBR piece, I’m astounded that so much of business *strategy* appears to just be “planning”, as though all your suppliers and customers and competitors and context will kindly be predictable for the duration of your plan )

    Thank you for writing such a thought provoking piece, there’s a lot to think about here…

    1. Thanks for the thoughtful comment, Nick.

      That’s a really interesting way of looking at of unknown knowns: although I personally prefer the Žižek definition, I do like the idea of what is previously unknown being surfaced.

      Re the HBR piece, I couldn’t agree more about the limitations of a static planning approach. I thought the authors made a good case for the shortcomings of the traditional strategic planning model and the advantages of a more dynamic approach that can adjust for the variables you’ve described.

  2. This is a fascinating concept. Your suggested mapping of the three previous eras of strategy fit better than they should, given there isn’t an international business trends steering committee full of Donald Rumsfeld fans (one assumes).

    Here’s one way I can think of in which the fourth age has already been characterised by the ‘unknown knowns’. One of the big themes in business strategy since the financial crisis, at least, has been compliance (or sometimes how to get around it with your profits intact). I’m thinking of both legally enforceable compliance with regulations but also more recently cultural pressure to commit to social-justice type initiatives and policies.

    Businesses have been on the back foot for the better part of two decades, being seemingly the last to find out what kind of behaviour is now expected and then scrambling to respond. Yet in many cases the behaviour that is being enforced is obviously something they should have been doing anyway – that they knew but preferred not to think about, like banks dealing on their own book against the interests of their clients.

    I will look out for that book about the billionaires; it sounds like a psychedelic glimpse into the world of the 0.1% . 😀

    1. Such an interesting example of an unknown known, Meri. Thank you for sharing it.

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