Emergent vs Deliberate Strategy
When the future is uncertain, let strategy emerge through learning; when the path is clear, execute deliberately
Every company has two simultaneous strategy-making processes operating at all times. Deliberate strategy is the conscious, analytical process where leaders formulate plans based on data about markets, customers, and competitors, then implement them top-down. Emergent strategy bubbles up from the cumulative effect of day-to-day prioritization and investment decisions made by middle managers, salespeople, and engineers responding to unforeseen problems and opportunities.
The critical insight is that neither process is inherently superior. The right process depends on the circumstances. Deliberate strategy works when three conditions are met: the strategy encompasses all important details, it makes sense to all employees from their respective contexts, and there is little unanticipated influence from outside forces. In practice, these conditions are rarely all met, especially for new ventures.
Research shows that in over 90 percent of successful new businesses, the strategy that ultimately led to success was not the one the founders originally pursued. The successful ones survived because they had resources left to iterate after discovering their initial strategy was flawed. Failed ones spent everything implementing a deliberate strategy before its viability could be known.
The CEO's job is to match the right process to each business's circumstances. New disruptive ventures need emergent processes to discover viable strategies. Established businesses with proven models need deliberate processes to execute effectively. The challenge is managing both simultaneously and knowing when to switch. Discovery-driven planning offers a disciplined method for accelerating the emergent process by systematically testing assumptions rather than passively waiting for insights to appear.
The resource allocation process is the mechanism through which all strategy, both deliberate and emergent, is actually implemented. Strategy is what comes out of the resource allocation process, not what goes into it. Understanding and managing the criteria by which resource allocation decisions are made at every level of the organization is the highest-impact challenge in strategy development.
- Both deliberate and emergent strategy processes are always operating simultaneously in every company.
- Deliberate strategy is appropriate when the right strategy is known and the challenge is execution. Emergent strategy is appropriate when the future is uncertain and the challenge is discovering what works.
- In over 90 percent of successful new businesses, the strategy that ultimately succeeded was different from the founders' original plan.
- Strategy is what comes out of the resource allocation process, not what goes into it. Pay attention to what companies do, not what they say.
- The resource allocation process is driven by organizational values, especially cost structure and margin requirements, which determine what opportunities get prioritized.
- Discovery-driven planning reverses the traditional planning process: start with required financial outcomes, identify what assumptions must prove true, then design experiments to test those assumptions before investing heavily.
- The CEO must personally and repeatedly intervene to ensure each business under their care is following the appropriate strategy process for its circumstances.
- Assess the Circumstances of Each VentureDetermine whether each business under your management is in a circumstance that calls for deliberate or emergent strategy. If the competitive landscape is clear, the target customers are known, and the business model is proven, use deliberate strategy. If the future is uncertain, the right customers are unknown, and the business model is unproven, use emergent strategy. Most new disruptive ventures require emergent processes.Pro tipAsk yourself: Do we know what the right strategy is? If the answer is yes, execute deliberately. If the answer is no or we think so but cannot be sure, employ emergent processes.WarningThe most common failure mode is applying deliberate strategy to ventures that need emergent processes. Companies invest massively to implement strategies before their viability can be known, then write off the investment when the strategy proves wrong.
- Control the Cost Structure of New VenturesThe cost structure of a new venture quickly becomes its most powerful value, determining what customers and products appear attractive in the resource allocation process. Set up the new venture with a cost structure that makes small, low-margin orders from disruptive customers financially attractive. Minimize major cost commitments that would force the venture to pursue large, premium customers before its strategy is proven.Pro tipThe habit of established companies is to ramp up expenses ahead of revenues because in sustaining innovation, these are safe bets. In disruptive innovation, this habit creates a cost structure that filters out the very opportunities the venture needs to pursue.WarningOnce a cost structure is established, it is extremely difficult to change. Getting the initial conditions right is far easier than restructuring later.
- Use Discovery-Driven Planning to Accelerate EmergenceInstead of the traditional planning sequence of assumptions to projections to funding to implementation, reverse the order. Start with the required financial projections (everyone knows how good the numbers need to look). Then identify what assumptions must prove true for those projections to materialize, ranked from most to least critical. Design cheap, fast experiments to test the most critical assumptions. Only invest significantly after the viability of key assumptions is established.Pro tipThe traditional planning charade has innovators cycling back to revise assumptions until the numbers look good enough for funding. Discovery-driven planning skips this charade and focuses on whether the assumptions behind the numbers are actually valid.WarningDiscovery-driven planning sometimes reveals early that no reasonable set of assumptions can support the required numbers. This is a feature, not a failure. It saves the organization from a much more expensive eventual write-off.
- Recognize When to Switch from Emergent to DeliberateMonitor the emergent strategy process for signals that a viable strategy has been discovered. When a winning pattern becomes clear, shift decisively to deliberate mode. Seize control of the resource allocation process and focus all investments on executing the proven strategy. The switch point is when you can articulate with confidence what will work and why.Pro tipIntel illustrates the ideal sequence: emergent processes discovered the microprocessor opportunity, then management deliberately and sometimes ruthlessly focused all resources on that strategy once it became clear. Both phases were essential.WarningMany executives switch too early, committing to a strategy before its viability is proven. Others never switch, continuing to explore when they should be exploiting a proven model.
- Manage Deliberate and Emergent Processes SimultaneouslyThe CEO must manage the core business with deliberate strategy while guiding new ventures through emergent processes. This requires maintaining two different strategy-making modes simultaneously and intervening personally in each business to ensure the right mode is being used. Do not leave the choice of strategy process to policy, habit, or culture.Pro tipAfter succeeding with deliberate strategy in the core business, executives often forget that the winning strategy was originally discovered through emergent processes. They then impose deliberate processes on new ventures, causing systematic failure.WarningVery few executives have demonstrated consistent ability to manage both processes across multiple businesses. This dual management of strategy processes is one of the most important and least mastered executive skills.
Intel's production schedulers allocated capacity by gross margin per wafer start. When Japanese competition crushed DRAM margins, the resource allocation process systematically shifted capacity to microprocessors without any explicit strategic decision. Senior management continued investing R&D in DRAMs even as the emergent process executed an exit. Only when Gordon Moore and Andy Grove recognized the pattern did they switch to deliberate execution of the microprocessor strategy.
Prodigy invested over a billion dollars in a deliberate strategy focused on online information retrieval and shopping. When subscribers clearly preferred e-mail, management tried to discourage the behavior by charging extra fees rather than recognizing the emergent signal. AOL entered later with an e-mail-first strategy that matched what the emergent evidence had already shown.
Apple, HP, IBM, and other computer companies invested massively to implement deliberate strategies for the PDA market, building full-featured devices with technologies like handwriting recognition. When the products proved inadequate as notebook replacements, all companies scrapped their efforts. Palm alone shifted to an emergent process when its original strategy of providing PDA operating systems failed, discovering the electronic personal organizer concept.
The deliberate versus emergent strategy framework draws on Henry Mintzberg and James Waters' foundational research and Robert Burgelman's studies of strategy making at Intel. Christensen and Raynor applied these insights specifically to the challenge of managing disruptive innovation. The Intel case provided the most vivid illustration: Intel's transformation from a DRAM company to a microprocessor company was not the result of deliberate strategy but emerged through the resource allocation process, as production schedulers systematically shifted capacity toward higher-margin microprocessors. Only after the emergent strategy had essentially completed the transformation did senior management recognize and deliberately execute the new strategy.