The Strategy Machine: Building Your Business One Idea at a Time

Robert W. Bradford reviews:

The Strategy Machine: Building Your Business One Idea at a Time
By Larry Downes
Digital Download at amazon.com, $13.97

Are you prepared to adapt your strategies to the constantly changing future? Are you ready for the rate of change to speed up? The Strategy Machine by Larry Downes (author of Unleashing the Killer App), contains great conceptual tools for thinking about ways to re-invent your business in the face of the technological and globalization revolutions.

It is clear that Downes wrote The Strategy Machine after getting a great deal more exposure to the strategic management process than he had when he wrote the classic Unleashing the Killer App. Where Killer App revolves around the central idea of organizations evolving towards success by destroying their own markets, fully a third of The Strategy Machine focuses on the greatest challenges of strategic change: overcoming cultural inertia and execution. This very likely comes from a close look at companies that, in the late 1990’s, at least gave lip service to the revolutionary concepts in Killer App – companies that ultimately fell on hard times as the US economy bogged down on the twin disasters of the dot com bust and 9/11. In a sense, the book attempts to answer a question we will be hearing for years to come: Why did the 1990s juggernaut of self-destructive revolutionary companies slow down?

The core of Downes' strategic thinking revolves around three stages that an industry can go through – each of which amounts to a separate “industrial revolution”, despite the fact that elements of each may be occurring simultaneously within a given industry:

Efficiency – Value is created through cost reduction with a full-bore attack on transaction costs. (Example: Dell removing inventory and distribution bottlenecks in the PC industry).
Exchange – Value is created through information assets which arise from “virtual markets” which expose hidden transaction costs and other inefficiencies. (Example: eBay reduced the hidden transaction cost of thin local markets for a wide variety of goods through its virtual marketplace).
Emergence – Increased integration of the industry leads to an efficient “information supply chain”. (Example: Digital music downloading services are completely changing the dynamics of the recorded music industry, with effects that are still working out, with the old industry dynamics built around labels, recording contracts and album sales driven by radio play giving way to a far more fragmented market).

One of the core concepts of the Killer App – the technological innovation that disrupts an industry by restructuring the supply chain – is a clear target for companies that are seeking to ride the emergence wave. Strategically, we see this concept somewhat differently based on your perspective: if you are a young company, you are probably seeking success by driving this kind of disruption, but if your company is more mature, your strategy may revolve around how you can profit from disruption that may extinguish your current business model.

The Strategy Machine does an excellent job of helping you to understand the concept of emergence so that you can be a part of the information supply chain – and therefore, one of the survivors in your industry. It then drives into some interesting prescriptions – always a tricky thing in strategy – which can help you think about executing on these concepts. First, Downes suggests that you design three concurrent plans for your strategy – one for each stage of industry transformation. The aim of these concurrent plans is to have a balanced portfolio of strategic projects going all the time – some delivering the mature process improvements required at the efficiency stage, some the blend of old and new technologies that characterize the exchange stage, and a few, very risky projects on the experimental end of the emergence stage. The Strategy Machine even goes so far as to suggest a ratio (3:2:1) of resource allocation to the projects as well as some good tools for populating your strategy portfolio and thinking about funding of projects at different stages. This is the meat of the practical tools offered by this book, and they are good tools.

The final part of The Strategy Machine covers the challenge of execution. Downes covers the social inertia confronted by all real strategic change, and gives a detailed assessment of the different types of obstacles – both external and internal – that you will have to overcome to successfully implement a profound change in your strategic direction. This part of the book is rich in anecdotes and real-world examples of companies that did or did not succeed in overcoming these obstacles. Unfortunately, while the concepts and examples are good, this last third of the book lacks the practical tools that make the middle third so valuable. Even so, The Strategy Machine is to be commended for devoting so much of its content to the ugly underside of strategy – implementation. This area is absolutely critical to strategic success, yet most strategy books focus all of their attention on information gathering, analysis and strategy formulation, leaving readers holding the bag when it comes to actual execution of strategy.

If your company is either seeking to disrupt an industry with innovative strategy or looking to survive an anticipated disruption, The Strategy Machine will give you excellent food for thought as well as some practical tools for thinking about the composition of your company’s strategy portfolio.

Robert Bradford is President of Center for Simplified Strategic Planning, Inc. He can be reached via e-mail at

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