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LOIZOS HERACLEOUS: My name is Loizos Heracleour[Loizos Heracleous, Professor of Strategy,Warwick Business School] I'm a professor of strategyat Warwick Business School.And my area of expertise is strategy and organization.[How would you define strategic management research for someonewho has not encountered the term before?]So the field of strategy essentiallystarted when some managers initially, and then scholars,

LOIZOS HERACLEOUS [continued]: tried to understand the sources of superior performance.To put it simply, what makes one organizationperform better than its peers?And secondly, how does it make it perform better sustainablyover time?So strategy is the search for the sourcesof superior performance, the effort

LOIZOS HERACLEOUS [continued]: to understand why companies are more successful than others.The field of strategy management has over timebecome quite fragmented.And so now we have people studyingall sorts of themes, strategic change processes, howstrategic issues are defined, how they're framed by language,

LOIZOS HERACLEOUS [continued]: how strategic decisions get made,the practices of strategizing, who are the actors involved,how do they interact.So whereas strategy as a field started with a searchfor the sources of superior performance,right now scholars are studying all sorts of themes,strategic change processes, how strategic issues get framed

LOIZOS HERACLEOUS [continued]: by a language or discourse, the practices of strategizing who'sinvolved in the strategy process, who the stakeholders,how do they interact.So there's all sorts of themes.And they all look at a specific kind of outcome, not simplyhigher performance.

LOIZOS HERACLEOUS [continued]: But however way you look at it, whicheverperspective you choose, strategy remainsan applied and pragmatic field.Perhaps faithful to its source, the artof the general strategos, which means the leader of the Army.It's a Greek word.

LOIZOS HERACLEOUS [continued]: So the general seeks to accomplish certain goals.And the general has certain resources at their disposal.And they position those resources aiming to win.So that is a perspective of thought or spiritthat has remained in the field of strategy.[What inspired you to get involved in the field

LOIZOS HERACLEOUS [continued]: of strategic management research?]When I was studying for my undergraduate degree,I realized that strategy was more of an overarching frame.We did study marketing and operations and human resources.But always there was this sense that whatever decision you take

LOIZOS HERACLEOUS [continued]: has to be consistent with a bigger picture.And so when I started reading a bit more about strategy,I realized it was kind of a golden childor an enchanted field.And then I remembered some of the stories

LOIZOS HERACLEOUS [continued]: that I'd heard in school when I was a child.In Greek history we have the battleof Marathon, the Battle of Salamisthe Battle of Thermopylae.And you have the Greek strategies.For example, Mitiades, in the Battle of Marathon.

LOIZOS HERACLEOUS [continued]: The Greek forces were vastly outnumberedby the Persian forces.And Mitiades did a few things that where unheard of.He changed the traditional formation of the phalanx.He made it thinner and tried to engulf the Persian army.He stroke at the right moment, which is

LOIZOS HERACLEOUS [continued]: a key aspect of any strategy.So when I sort of read more about this,I realized the strategy is not simply about shear strength.It's about how you use limited resources.And if you use them properly you can

LOIZOS HERACLEOUS [continued]: triumph above any competitor who has more resources or morestrength than you.So strategy is about a game plane.It's about employing limited resources to maximum effect.And I found that idea quite appealing.And so I decided to study strategy.

LOIZOS HERACLEOUS [continued]: Over time I've been reading other things, like, Sun Tzu,The Art of War.And I studied the history of the Samurai class in Japan.And in every case, the study thinking was fundamental.So there's something about strategy that at least to memakes it a subject worthy of delving into in more depth.

LOIZOS HERACLEOUS [continued]: [Why is it important to study strategic management research?]It's important to study strategic management researchbecause the world is a competitive place.And strategy is about helping any entity becomemore competitive using limited resources.And so this kind of reasoning applies to almost anything,

LOIZOS HERACLEOUS [continued]: to individuals, to groups, to organizations, and evento nations.So this has become apparent to me.For example, when I was living and working in Singapore,I lived in Singapore for seven years.As you know, Singapore is a tiny nation, 20 by 30 kilometers,

LOIZOS HERACLEOUS [continued]: on the southern tip of Malaysia.And Singapore was like a backwater tradinghub of the East Indian Company.However, after they'd left the Malaysian Federation,within about two or three decades,

LOIZOS HERACLEOUS [continued]: it's become a global metropolis.Singapore has no natural resources.It has very title land.It has now about five million population.How has it done this?If you look at global ranking, Singaporeis near the top on intellectual property protection,

LOIZOS HERACLEOUS [continued]: on one of the best places to do business, one of the leastcorrupt places in the world.It's a very desirable place to engage with for corporationsand for individuals.And you have ask, how did this happenin a limited amount of time?The onset is strategy.

LOIZOS HERACLEOUS [continued]: The national strategy from about 40 or 50 yearsago was to build up Singapore initially as a trading hub,then to move it up to a manufacturing base, thento move up the manufacturing graduallyfrom low value to higher value manufacturing,

LOIZOS HERACLEOUS [continued]: then to make it the global node for transport of goods,then to create a global financial center,and then to make it what they calledthe post of the eastern center for learning and development.And all of these strategies are additive.They were developed at the highest levels of government,

LOIZOS HERACLEOUS [continued]: through engagement with experts, government bodies,and government institutions.And the state has put in a lot of resourcesto make these strategies real, to implement them.And the success of Singapore is down to strategic thinking

LOIZOS HERACLEOUS [continued]: and implementation.So that to me it's a good exampleof why you should understand strategic management research.[Who are the key thinkers in this field that have mostinspired you, and who continues to influence you?]I have many sources of inspiration.One source that many people would cite is Michael Porter.He is an emeritus professor at Harvard.

LOIZOS HERACLEOUS [continued]: And the reason Porter is a one of the people who inspired me,is that he helped to bring structure to a field thatwas unstructured.He helped to bring some of the tools of economics,to provide rationality, to provide analytical power.

LOIZOS HERACLEOUS [continued]: That's one.Another person who inspired me is Alfred Chandler, a historianof business at Harvard.And I find Chandler inspirationalbecause he showed how viable it is to actually understandwhere industries and companies came fromand how that influences their current capabilities

LOIZOS HERACLEOUS [continued]: and trajectory.The other modern thinkers that have inspired me,for example, one is Costas Markidesat London Business School.Costas has shown that professors can be ambidextrous.They can be both rigorous, but also relevant

LOIZOS HERACLEOUS [continued]: and applied, and say things that executives and companiesfind useful.After all, we are working in business schools.Apart from strategy thinkers thereare other thinkers that inspired meand that I bring into my work.So for example, the classic sociological book,

LOIZOS HERACLEOUS [continued]: The Social Construction of Reality,written by Berger and Luckmann in the '60sis one of the key things that I bring into my workbecause one of the messages that work bringsis that reality in many ways is socially constructed.And when you look at how strategic paradigms evolve,

LOIZOS HERACLEOUS [continued]: when you look at why certain decisions getmade, or don't get made, when youlook at why certain strategies get implemented easily,whereas others struggle for years and years.It comes down to how people view their decisionsand the strategy and how that influences their motivation

LOIZOS HERACLEOUS [continued]: to actually engage with it or reject it.So another thinker that's influenced me is Gareth Morgan.He wrote these seminal book, the Images of Organization,where he argued that we can look at organizationsand their challenges from a varietyof metaphorical standpoints.

LOIZOS HERACLEOUS [continued]: So organizations could be seen as machines, as organisms,as brains, as psychic prisons, or as different things.And each metaphor brings certain insights and highlights,other issues, highlights, and downplays, other issues.So all of those things where I think instrumental

LOIZOS HERACLEOUS [continued]: informing my work.[What are the key debates or research questions in strategicmanagement research?]The key research questions in the strategy fieldare related to the original perspectiveof what are the sources of superior performance?There are all sorts of related questions.So for example, is superior performance

LOIZOS HERACLEOUS [continued]: mostly due to industry structure and positioning of the firmor is it mostly due to internal capabilitiessuch as innovation, efficiency, process, excellence,reliability, customer orientation, or whatever?There are scholars who, for example, examine things to do

LOIZOS HERACLEOUS [continued]: with industry class clusters.They're looking at corporate level strategy, such as mergersand acquisitions, disposals.They're looking at issues to do with business positioning.They're looking at issues to do with morespecific capabilities.

LOIZOS HERACLEOUS [continued]: There's all sorts of themes now.The themes that I've been looking at recentlyinclude this idea of ambidexterity.Essentially, ambidexterity asks, could wehave organizations that have capabilitiesthat would normally be considered contradictoryor in tension with each other?

LOIZOS HERACLEOUS [continued]: And the archetype pair is innovation and efficiency.In order to innovate you have to invest.And it takes time.And it's risky.And tends to increase costs.In order to be efficient, you needto cut costs almost everywhere in orderto have strategic alignment.

LOIZOS HERACLEOUS [continued]: But are there companies that are good at both contraryto expectations?And the answer is, yes.So I've been looking at Apple, for example.Most people don't appreciate that if youlook at the cost metrics of Apple,it's more efficient than Dell.And Dell is not known for innovation.

LOIZOS HERACLEOUS [continued]: It's known for standardization efficiency.But Apple is quite innovative in terms of, for example,technology integration in terms of choiceson design, and customer friendliness,and in terms of its ecosystem.

LOIZOS HERACLEOUS [continued]: So Apple can do both.And if you look at it in some depthyou can discover the principles of how it can do that.And that's part of my research.I've published on this couple of pieces of work.If you look at, for example, Singapore Airlines.

LOIZOS HERACLEOUS [continued]: Singapore is an airline that's known for high quality, serviceexcellence.But at the same time, if you look at their cost base.It's very competitive. it's lower than almostall of its peers.So how can they do that-- have service excellenceand low cost?

LOIZOS HERACLEOUS [continued]: And again, I've done a few studies on thisand published them.And then finally, I've recently been lookingat this hospital in India.It's called Narayana Health Hospital.And they do open heart surgery.And open heart surgery in America

LOIZOS HERACLEOUS [continued]: costs well over $100,000.In India, it costs about 6,000.But Narayana Health does open heart surgery for $1,600,about 70 times cheaper than the United States.And yet, if you look at the quality-- and the indicators

LOIZOS HERACLEOUS [continued]: of quality in this case would be complications.If you look at the complication rate,it's lower than the United States.So obviously, something's happening there.This is a good example of ambidexterity.And again, there are reasons thisis happening, having to do with operational and strategic

LOIZOS HERACLEOUS [continued]: choices and leadership.And this is the sort of thing I'mtrying to understand right now.[How is it possible for India to deliver cheaper open heartsurgery?]Part of it is volume.Part of it is the factors of production are cheaper.

LOIZOS HERACLEOUS [continued]: But they're not 1/70 cheaper.So they are cheaper, which helps.But then it's the internal operational decisions.I'm still researching this, but ithas to do partly with volume.It has to do partly with leadership attentionand cutting costs everywhere without compromising quality.

LOIZOS HERACLEOUS [continued]: It has to do with keeping doctors happyand helping them become specialists by your repetition.So a doctor in India made do about eight of these open heartsurgeries, six to eight in a day.A doctor in the US, they could do one a day

LOIZOS HERACLEOUS [continued]: or one every couple of days.Now.If you do six to eight a day, you become an expert.There's very few complications that you haven't seen before.And obviously, it's the argument of Malcolm Gladwell, 10,000hours to become an expert is moreperspiration than inspiration.

LOIZOS HERACLEOUS [continued]: And that helps considerably.So it's a global operational strategic decisionsthat I'm looking into to try to understandwhat exactly is happening.[Can you tell us about a case study that illustratesthe value of strategic management?]So one case study that shows the value of strategic management

LOIZOS HERACLEOUS [continued]: is the Apple case study.Now we all know that Apple has been on a roller coasterbefore 1997.It's had a few near death experiences.I use 1997 because that's when Steve Jobs went back to Appleafter being kicked out by John Sculley and the boarda few years prior to that.

LOIZOS HERACLEOUS [continued]: So Steve Jobs went back as a consultantand paid $1 per year.And gradually, he took on the role of the Chief ExecutiveOfficer.And what's interesting is that in 1997, Apple onlyhad cash for a few months.It was literally going bankrupt.

LOIZOS HERACLEOUS [continued]: It was a classic case of being stuck in the middle.It wasn't efficient enough.It's costs were high.At the same time it's products where not as desirable as now,were not as desirable for people to pay the premiumsthat Apple was charging.And so several strategic decisions had to be taken.

LOIZOS HERACLEOUS [continued]: So for example, Steve Jobs decided to focus.He scrapped two thirds of product development projectsunderway to focus on the one thirdthat he thought were likely to produce groundbreakingproducts.That takes courage and conviction and insight

LOIZOS HERACLEOUS [continued]: into the market as to what the market is going to like.He also forecast in terms of product linesas well as features on specific products.So if you look at an Apple product, it's very simple.It can do quite a few things, but itis not loaded with things that you don't care about

LOIZOS HERACLEOUS [continued]: or don't want to do-- simple to use, intuitive.And it's harder to make a simple product like thatthan to make a product with 1,000 features.So there was focus.There was a return to this spirit of Apple.He actually went to the first meeting with the executives

LOIZOS HERACLEOUS [continued]: with a beard and shorts and slippersand just sat on the chair and said,why is Apple in this state?And he said, it's because it has no sex anymore.What he meant, is that Apple has lost its module.And he was right.Apple had lost its spirit, it's contrarian, groundbreaking,

LOIZOS HERACLEOUS [continued]: innovative spirit.And so that's the second thing he did.He brought the spirit of Apple back.He did some other things focusingon simplicity of design.He also started creating and strengthening the ecosystem.So ecosystem is what makes Apple capable of charging a premium

LOIZOS HERACLEOUS [continued]: price.And people will pay for it because of the experiencethey get when they have an ecosystem of Apple product.So you have an iPhone.You have the computer.You have the iTunes.Now, you have the iWatch.Wash and all of these things link together.And it creates what's known as stickiness.

LOIZOS HERACLEOUS [continued]: Stickiness means essentially, barriers to exit.It's not so easy for someone to say,I'm just going to buy a Samsung phoneif they have an Apple computer, an iWatch, and other Appleproducts, an iPad.So if we look at strategy at Apple

LOIZOS HERACLEOUS [continued]: we can see why the company went out of a near bankrupt stateto be a dominant competitor.Now, many people looking at the recent Apple introductions,they say Apple is not innovative anymore.They're just coming up with things thatalready exist on the market.

LOIZOS HERACLEOUS [continued]: But think about it.When has Apple come up with things thatdo not exist on the market?Smartphones existed before the iPhone.It's just not many people found them easy to useor wanted to use them.Tablet computers existed before the iPad.

LOIZOS HERACLEOUS [continued]: Now, what Apple is great at doingis taking existing product categoriesand creating something that people want to use,that people love.So it's more of a technology integrator and a designinnovator rather than a technology innovator.And if you look at what it's done with the it's latest

LOIZOS HERACLEOUS [continued]: reveal of products, the iPhone 6, the iWatch, and Apple Pay,what its done is again demonstrated it's designprowess.It's also strengthened the ecosystem, strengthenedthe sense of stickiness, because for example, to use an iWatch,you have to have an iPhone.

LOIZOS HERACLEOUS [continued]: Right?But what most people don't appreciateare the implications of Apple Pay.Over time, Apple will dominate payment for simple things,like, you go to the grocery storeif you buy something from the neighborhood shop.

LOIZOS HERACLEOUS [continued]: Over time, Apple will have a higher and higher marketshare of payments.Over time, Apple will find ways to monetize thisand it will find ways to embed it even furtherin its ecosystem to make you want to use Apple products.And so what Apple has done is open another strategic option.

LOIZOS HERACLEOUS [continued]: It broadens its revenue base and it strengthens the ecosystemfurther.And it entered a sector which it couldbecome a leading competitor in.And it's a lucrative sector.So you look five years down the line,you will see what that means Apple.

LOIZOS HERACLEOUS [continued]: [What are the common challenges facing organizationsand employees relating to strategic management?]Well, strategic management as a research and as a practiceis something that is always at the forefrontin senior leadership or senior executive discussions.But if we look at some more particular issues,

LOIZOS HERACLEOUS [continued]: one issue that I often observe iscompanies who want to move their managers from a positionof being technically excellent, or operationallyexcellent, or excellent at leading a business or a productor brand, move them up to a leadership strategy position,

LOIZOS HERACLEOUS [continued]: move them to a situation where they can see the big picture.They can understand trends.They take decisions with keeping in mind the whole corporation,keeping in mind the consequences of the decisionsfor the company positioning, performance,

LOIZOS HERACLEOUS [continued]: and internal functioning.So these move from operations to strategyis something that almost all companies struggle with.And the best companies have programsto help their managers make that transition.And as the talent wars become more and more intense,

LOIZOS HERACLEOUS [continued]: because we know there's a shortage of good managementtalent around the world, as the talent wars become moreintense, these will become more and more important,the building of strategic acumen.[How does talent affect strategic managementdecisions?]The issue of talent is already affecting strategic management

LOIZOS HERACLEOUS [continued]: decisions.We know that, because if we look at some of the most admiredexecutives and we see how do they spend their time,we know, for example, that Jack Welch spend some people say upto half of his time on different people issues,mean he would often write thank you notes to even

LOIZOS HERACLEOUS [continued]: middle executives himself.Now, General Electric is company with hundreds of thousandsof employees.Imagine the CEO writing thank you notes downthe line to middle managers.Imagine the CEO sitting in on employmentof middle managers on their job interview,

LOIZOS HERACLEOUS [continued]: which Jack Welch used to do.He also went to the company's training center,the Crotonville site, in order to personally sharehis knowledge, wisdom, personally motivate people.So Jack Welsh was all about people development.He was also tough.

LOIZOS HERACLEOUS [continued]: He had the famous curve.People would be put on the curve.The top 20% would get share options.The bottom 10% would be advised, that they have a year or two.Otherwise, they would be invited to leave.But that this part, I guess, of the broader national culture

LOIZOS HERACLEOUS [continued]: where GE is based, that idea of competitiveness.If we look at Steve Jobs, we knowthat Steve Jobs would personally identifywho he thought was the best in a particular fieldand talk to them in person, invite themfor a barefoot walk, and a chat.

LOIZOS HERACLEOUS [continued]: And he would tell them, I would like employee you at Apple.Now imagine how powerful that is that a CEO tells you,I think you can bring a lot to this company.And so we don't know.The most effective CEOs see talent as a strategic area.And they spend time on these issues.

LOIZOS HERACLEOUS [continued]: [How has the field changed, and which developments do youconsider most significant?]I see a couple of developments in the field of strategy.One development is that the field has becomemore and more fragmented.But fragmentation is not necessarily a sign of weakness.It can be a sign of strength because itallows researchers to study challenges as they arise.

LOIZOS HERACLEOUS [continued]: And they can study them using a variety of perspectivesand methodologies.A second development that I see isthat case-based qualitative longitudinal processionalmethodologies are now more accepted, are supposed to,

LOIZOS HERACLEOUS [continued]: for example, be traditional large-sample questionnairemethodology.What that means is that we can look at certain challengesin more depth.We can follow decision-making over time.We can do in-depth interviews.We can go in an organization and conduct ethnographys.

LOIZOS HERACLEOUS [continued]: We can do action research.We can help an organization while gathering datafor our research.So all of those ways of researching and orientationsare seen as more legitimate now in the field of strategy.And I think that strengthens the field considerably.

LOIZOS HERACLEOUS [continued]: [What new research directions do you find most exciting,and where would you like to take your own research?]Well, what I've been researching recentlyis these idea of mid-dexterity.And I'm now combining it with this ideaof historical evolution or historical development,because there are certain areas of path dependence,

LOIZOS HERACLEOUS [continued]: history shapes the present.And if we can understand how that happens,then we will be in a better positionto influence the present.So for example, one case I'm looking at is Xerox PARC.Xerox PARC was responsible for someof the most important innovations in technology.

LOIZOS HERACLEOUS [continued]: However, Xerox hasn't benefited from those.Other companies took them and run.What happened?So what happened was a lack of what wewould call now ambidexterity.And so we know Xerox PARC was the innovative arm of Xerox.It was what we would call excellent exploration.

LOIZOS HERACLEOUS [continued]: Xerox as a company was excellent at whatwe would call exploitation of existing productsand resources.So what happened was a misalignment of cultures.What happened was a disjuncture between Xerox PARC and Xerox--not enough integration.They had different ways of thinking.

LOIZOS HERACLEOUS [continued]: Xerox managers had targets to meet.Therefore, they focused on exploiting the current product,the copiers.Picking up any of the innovative products of Xerox PARCwas risky, would take time, it might compromisethem meeting their targets.And so we had a situation where ambidexterity was missing.

LOIZOS HERACLEOUS [continued]: And that's what led to the innovations of Xerox PARC beingtaken out by other companies and Xerox not benefiting from it.So I'm looking at this historicallyduring the '70s and '80s.Another case I'm looking at is the case of NASA in the US.

LOIZOS HERACLEOUS [continued]: And we know that NASA is under pressureto become more efficient.Their budget is $20 billion.The US government, has an annual budget cyclethat it has to approve this budget.And there are robust discussions as to whether the US should

LOIZOS HERACLEOUS [continued]: be investing $20 billion a year on NASA.So NASA is under pressure to become more efficient.At the same time it has to deliverexploration goals literally exploring the universe,but also figuratively exploration in the senseof developing new technologies.

LOIZOS HERACLEOUS [continued]: Many of the technologies developedby NASA for space fairing are actually be used in hospitalsand in industry right now.But looking at the history of NASA,we can see certain things that both enable and impede

LOIZOS HERACLEOUS [continued]: ambidexterity.If we look at the things that impede ambidexterity-- wecan see, for example, the culture in the early dayswas all about winning the Cold War, going to the moon first.It was not about cost control.And that remained.

LOIZOS HERACLEOUS [continued]: The culture of NASA is more aboutaccomplishing technological excellence.Control, of course, is not as strong.It's there, but not as prominent.That influences ambidexterity.If we look at the fact that NASA is a public sectororganization, over time it startsto be influenced by a public sector, logic, and culture.

LOIZOS HERACLEOUS [continued]: It starts to be influenced by the myriad of rules,regulations, procedures that are developedby the government for public sector bodies.And what that does is, again, does not put efficiencyon top of the agenda, but also could somehow make innovation

LOIZOS HERACLEOUS [continued]: harder to accomplish.So looking at all of those things,we can actually understand the present more effectively.[Can you explain the meaning of ambidexterity?]So one definition of ambidexterityis being able balance capabilities

LOIZOS HERACLEOUS [continued]: that would be considered distinct or intention.And so it's a metaphor that comesfrom how a person could write with both hands, for example.So we can look at it in many ways.So for example, an organization thatcan balance global efficiency with local responsiveness,

LOIZOS HERACLEOUS [continued]: or an organization that can both develop capabilitiesfor the future as well as focusingon present exploitation of current capabilities.So there are different ways to look at it.But it's essentially balancing capabilities thatcould be seen as conflicting.

LOIZOS HERACLEOUS [continued]: [How do you approach this topic as a teacher?]Strategy is an applied pragmatic field.So the traditional model of lecturingis not really appropriate.Strategy is best taught through engagement,through dialogical conversational approaches.

LOIZOS HERACLEOUS [continued]: And secondly, through a problem-centered model.What that means is perhaps use cases that could be historicalor could be current.It could be something you've prepared.Or, it could be something that ishappening in the media or industry currently.

LOIZOS HERACLEOUS [continued]: And so looking at situations, looking at the problemsand challenges, and asking students to take a decision,because this is what they will have to do as strategies.Strategic decisions by nature are difficult an subtle.You have dilemmas.You have good reasons to do something, good reasons not

LOIZOS HERACLEOUS [continued]: to do something.Yet, you must use wisdom.You must be able to weigh them up.There's no model that will give you the answer.If there was, you could use a computer.And it would be the best strategist.So you have to use wisdom, experience, insight,the ability to see levels of obstruction.

LOIZOS HERACLEOUS [continued]: You have to see the big picture.You have to see the consequences for your company.You have to see the consequences for your company operations.And you have to see the consequences for people.You have to see the financial aspect.And you have to have what's knownas a holistic perspective.And so strategy's best taught by engagement,

LOIZOS HERACLEOUS [continued]: with problem-centered questions.And this could be done in a variety of ways--could be done with case studies, could be done with projects,could be done longitudinally.But in every case, the students have tooideally get their hands dirty doing their own research,

LOIZOS HERACLEOUS [continued]: understanding the situation, but also take decisionsand be able to defend them, and beable to-- ideally, when they becomemanagers they will have to bet resources on those decisions.And therefore, ideally, they would get to a point

LOIZOS HERACLEOUS [continued]: where they can make decisions in an informed wise manner.[MUSIC PLAYING]