The key to improvement is bringing evolution inside and getting the wheels of differentiation, selection, and amplification spinning within your organization, says McKinsey senior advisor Eric D. Beinhocker. In his book, “The Origin of Wealth,” Beinhocker suggests that instead of thinking of strategy as a single plan built on predictions of the future, think of strategy as a portfolio of different experiments with different goals. In other words, develop competing business plans that evolve over time. To embrace this portfolio-of-experiments approach to strategy, management requires a collective understanding of the current situation and shared aspirations. The future is hard to predict, so management also needs a process for differentiating business plans that results in a portfolio of different options. The organization needs to create a selection environment that mirrors the environment in the market. Finally, establish processes that enable the amplification of successful business plans and the elimination of unsuccessful ones. The message is not to tear up your strategy books, but to think of the tools of conventional strategy analysis as having a different purpose. The goal is not to get to the “answer” of a single focused five-year plan based on predictions of the future, but rather to prepare for the future and be ready when it arrives. As Louis Pasteur put it, “Chance favors the prepared mind.”

HBS Working Knowledge 19 Jun 2006