That was in no way a boring introduction. I think we all value your insight & analysis; the conversation is valuable, but the finer the detail that you hone in on, the more relevant the dialogue around it can be. It's ok to teach, too.

Great writing. It scares and excites me to think about what's happening in the world economy, and what opportunities there are to uproot what's there and make it work right this time around.

Regarding the finance industry aspect: I talked over dinner recently with someone who's several years into the investment banking world, which I usually only read about. In his experience, nobody outside of the big investment banks understands remotely enough of what's going on with the crisis, how we got into it, or much of anything about all the newer financial instruments they rely on these days. Given the incredible salaries you get working for the big banks as compared to working for the fed or some other regulator, and the usual mindset of young people in general who would want to get into finance and economics, his opinion was that even the rank-and-file at the regulators just have no idea what's really going on--at least not enough to develop and carry out enough meaningful regulations. That seems like a serious problem with no immediately apparent solution.

Also, thanks for the book recommendation. I'd love it, and maybe others here would as well, if you could list and describe a few top book recommendations that would be helpful to entrepreneurs working on coming up with or developing big-impact ideas--I'm short all of a sudden on books that I'm really excited about.

so the definition of strategy remains, what is strategic has changed. again. golden rule is still golden.

A few months ago I attended a talk by Rajendra S. Sisodia where he presented his book Firms of Endearment. He and his coauthors David B. Wolfe and Jagdish N. Sheth had conducted a study of a number of companies and evaluated their strategy in terms of caring about the interests of all stakeholders (shareholders, customers, supplies, community, etc.). The companies that cared the most performed 10x better than the S&P 500, and 2.5x better than the Good-to-Great companies. I thought this study was a great testament to the validity of your definition of strategy “your long-run best interest, factoring in everyone else’s long-run best interest”.

This is a great piece of writing that points out to the deficiencies of today's approach to strategy. The problem, as I see it, is that as much as everyone would fully agree to the limitations of arbitraging, deal-making and "racing to arms", there is a huge chasm between long-term outcomes and short-term interests.

It is difficult for most people to pursue a long-term goal without ensuring their own short-term survival. Why would artistes give away their music for free (i.e. investing in the long-term) if they cannot guarantee that they'll be able to feed themselves for the next meal with their music in the short-term? Alternatively, if I'm a car-seller, it's in my best personal short-term interest to mask any damages of my car (borrowing from your terminology, socialise the costs) and arbitrage at the highest possible price to potential buyers (likewise, privatise the benefits).

As our time horizons reduce with the shortening of business cycles, I would argue that strategy becomes more and more applied for the short-term. It's almost becoming a classic game theory situation of prisoner's dilemma. It is also why that while I fully agree with your thinking, I cannot fathom what alternatives we have to make those changes to strategic thinking.

Anyone with similar thoughts on this?

Is it "Saving Strategy from the Strategists"

or

"Saving Government (and the Economy) from the I-Meant-Well-But-Messed-Things-Up-By-Meddling-Where-I-Don't-Belong Politicians"?

Amen.
Reminds me of a piece I once wrote- "The Democratic Assault on Democracy".

I would propose the mess was created by TACTICAL thinking masquerading as strategic thinking.

True strategic thinking (along the lines you outlined) would have recognized that rote implementation of the same tactics, without recognition of the second order impacts or the incentives of the other players, would have guided one toward this result and thus an alteration of tactics.

Strategy is still valid; just not typically used.

The piece is brilliant conceptually, but weak on the fundamentals and basics.

We all know ‘execution’ is the soul of any strategy and ‘intelligence’ is the crux of execution. The report of the US Securities and Exchange Commission (SEC) released on July 8 confirmed that the "major rating firms ----flouted conflict of interest guidelines”. And, the list included the names of some ‘demi-gods.

When saints sin , generals betray, executives turn executioners and the public, including intellectuals and the fourth estate( guardians of the public interest) become gullible to take ‘swelling as growth’ total collapse is inevitable. We are lucky to have woken up before that. Let’s learn lessons and find quicker remedies.

Nik C has a piece in TC-IT yesterday (http://www.techcrunchit.com/2008/07/16/google-where-companies-go-to-die/) about the difficulty Google has in integrating companies it's acquired (and their engineering teams) because much of its development stack is proprietary, and so there just aren't many engineers who are familiar with it.

I know there's the hadoop open source mapreduce implementation, but maybe Google isn't being aggressively edge enough in pushing its internal technologies into the wider development ecosystem. Sounds like they're paying for it here.

Great article

- reminds me a conversation that I had with the (early-stage technology) Venture Capitalist that backed mGami "Strategy should be a "win-win" rather than a zero sum operation" (but with the exception of Early stage investing the finance community seem to have forgotten this premise.)

How many bank managers are evaluated on the "long-term" Win-Win of their debtor books?

T

Mr. Haque praises Rajan and Zingales' Saving Capitalism from the Capitalists, but in that book, arbitrageurs are the heroes. The book argues that only by liberalizing financial markets can countries break free from complacent conservative property owners who resist innovation. So I didn't understand why Mr. Haque says that arbitrage produces no social value. As explained in Chapter 4 of the book, the current crisis is due more to a herd mentality and bubble fever than to any inherent problem with arbitrage or finance generally.

Great post! What happens when you give children an opportunity to do whatever they want to do when parents and teachers aren't looking? They act out. And with no brakes child-managers mascarading as adults kept pushing the limits until the envelope burst. Whatever happened to common sense and the requirement to live on the gold standard? Americans are not mature enough to be trusted with credit. This experiment proves that. They spend more than they bring in, then find ways to spend more that isn't theirs. An artificial economy that the Fed and everyone else was afraid to blow the whistle on. "Now what a fine mess you've gotten us into Ollie." This isn't George Bush's fault. It's our fault. We did this to ourselves, and our strategists; be they corporate, financial or Federal merely responded in kind. Reactionaries to the nature/nurture environment breeding them. If the answer seemed right it must be. So we did it. Conservative yes. Can I live without a credit card yes. So let's stop looking for excuses and micromanaging credit card companies. Can't buy a car, don't lease one. Leases hurt the auto industry in favor of short term profit. Can't buy a house? Rent. Can't rent? Live with the folks. Embarassing? You bet. But a great incentive to be financially responsible. Save and get out. Just don't forget the lesson.

We have proven we are children in a candy store and we don't know when to stop eating. Guess the time is now. I think it's time to shrink America and not try to be all things to all people. A strong brand is always fewer things to fewer people. That's what gives it its alure.

Imagine a salesperon working on a long term strategy to close 12 big deals in the next year. Now imagine that same salesperson with her boss cracking the whip all day long demanding 4 big sales TODAY. This is similar to a public company that wants to focus on its long term strategy but has the specter of the market hovering over its shoulder huge growth RIGHT NOW.

Does the salesperson work better with the boss cracking the whip all day long? Maybe for a little while.

Khan Yow's comment about the "huge chasm between long-term outcomes and short-term interests" highlights the difficulty in making sure a company can survive on a day to day basis while still keeping the eye on the prize of developing long-term strategy. Day-day-day concerns are mostly intern, but the financial markets exert huge pressure on the short term strategy--oftentimes at the peril of longer term thinking.

"individual ration" vs "collective crazy".There is no solution,only collape down .

Thanks for the comments.

On John Landry's:

let's review both my argument, and saving capitalism.

1) the heroes in saving capitalism are the institutions that allow free markets to allocate resources efficiently
2) too often, the pursuit of competitive advantage fundamentally subverts those institutions and makes markets fail.
3) is that what competitive advantage is really about - subverting competition? no.

here's another to think about it.

does arbitrage produce social value? the entire point of saving capitalism is that it only does so - free markets only work - under a very special set of institiutional conditions. without them, arbitrage can destroy value - just ask Wall St, the City of London, or Ben Bernanke.

what's one of those conditions? that issuers of financial assets, like corporations, aren't trying *also* to arb the market in their own assets, (because, obviously, the market will fail).

that's one of the meanings of "strategy isn't arbitrage".

make more sense?

Thanks for clarifying, Mr. Haque. I take it that you're ok with arbitrage in general; the problem is when companies abuse arbitrage by ignoring the underlying risks in pursuit of short-term gain.
As for corporate arbitrage generally, the current issue of Harvard Business Review has an article by Prof. Mihir Desai on when multi-national companies (not investment banks) should arbitrage their financial assets. It says that arbitrage has definite advantages in boosting profits, by leveraging tax and capital-market differences in the countries where the companies operate. Prof. Desai points out that this arbitrage has the disadvantage of weakening local managers' incentives to use their capital efficiently, which is why GM and some other companies don't arbitrage as much as they might. I'd be interested in hearing how this activity fits in your intriguing framework, Mr. Haque.

Seems every corporate meeting is about something ' strategic'- sounds good when approaching a 'strategic development plan, or stategic intervention ' . Maybe strategic understanding or more strategic analysis needs to take place.Maybe strategy needs more emphasis before strategic intent.

Umair topic very interesting- cannot be classified as boring!

Why does strategy need to be saved? So more MBA's can be minted to exploit the weak in furtherance of the rich's safety?

The strategic model is still as solid as it ever was. The method used to achieve successful execution has been faulty for years and was bound to catch up. The culture in the financial markets has changed for the worst because the leaders have become opportunists instead of strategists. A disciplined sales manager who needs to increase sales would not stare at the bottom line. He would concentrate on measuring and improving those activities that are predictors of successful increase in sales revenue. The pressure that exists in these markets today make it very tempting to shoot right for the easiest dollars, rather than going back to the basics of execution. Reaching financial objectives is a bi-product of doing everything else right. The absence of this logic will catch up to any market eventually.

Well said, great assessment of the immediate challenges facing strategy.

Cheers,

Tony