Chapter 4

Paradigm Cycles and Strategy Prisons

Strategic prisons are overarching mental models that become sweeping guiding principles for making strategic and tactical decisions under a broad range of circumstances and that ultimately trap organizations. They are pieces of popular intuition that eventually turn into well-accepted truisms and get entrenched into the belief systems of decision makers. For example, how many of us will argue against the principles of differentiation, competency, customer satisfaction, diversification, or many such well-accepted truisms? Of course, they may well be important considerations when making key strategic choices in many domains and may often be true. After all, they have emerged from the collective experiences and wisdom of academics, researchers, managers, entrepreneurs, and consultants. Moreover, when put together, they may collectively constitute a comprehensive tool kit that can be employed in a diverse set of situations using just the power of analogy. However, these tools may have limitations and may not be as universally applicable as their proponents would like to believe.

For example, take the principle of customer focus that is at the core of many decisions and guides a number of processes inside an organization. Many firms employ the voice of the customer to aid in product design and select a feature set that is most preferred by a sample of customers who participate in the research process. Others work to optimize their in-store customer experiences that presumably drive sales. Still others track postpurchase customer satisfaction and direct strategy to maintain it at a reasonably high level. Taken together, customer focus becomes a mental model in these organizations that drives decision making from prepurchase product design to selling and postsale customer management.

Certainly, there is absolutely nothing wrong in being customer focused and using the principle to guide a variety of decisions and business processes. If one looks, one can always find evidence for the positive effects of customer-focused choices on business performance. However, there are three potential dangers that such a singular approach to strategy expose a firm to. First, as the guiding principle embeds itself in the decision-making process, it suppresses the verification process. Over time, managers do not feel the need to examine whether and to what extent following such an overarching principle is indeed driving firm performance. Second, being wedded to one principle limits the process of discovering alternative principles that are inconsistent with the current one, even though they might lead to superior performance. And finally, an attachment to one principle influences the culture of the organization and coerces nonbelievers to constrain their voices.

For example, in a case referenced in chapter 3, an extremely successful medical practice discovered that while its customer satisfaction scores were decreasing over time, its profitability was increasing. The evidence was contrary to the mental model around which the practice was built. Now if the practice had chosen to continue with its current mental model, it would have increased its investments in its customer management program, and the results may not have been favorable. However, it chose to challenge its model and followed the data to wherever it led. Ultimately, they discovered that the variable causing the discrepancy between the trends in the satisfaction scores and firm profits was the size of the facility or customer processing capacity that was leading to excessive waiting times. Over time, an increase in capacity utilization led profits to go higher but patient satisfaction to decline. The solution to the problem did not lie in traditional satisfaction enhancement programs but in capacity investment.