Strategic Dissonance

Robert A. Burgelman
Andrew S. Grove

ligning corporate strategy and strategic action is a key top manage-

A ment responsibility. Such alignment is viewed by some as driven by

the strategic intent of the CEO who sets ambitious targets within a 10
to 20 year time horizon, relentlessly develops the firm’s capabilities,
and transforms the basis of competition in the industry to the firm’s advantage.1
This is an inspiring view, to which many CEOs no doubt aspire. But it is a view
premised on top managers having extraordinary foresight. Extraordinary fore-
sight can, of course, always be assumed to explain successful strategies after the
fact. But there is convincing evidence that it is very improbable in high-technol-
ogy industries.2
If extraordinary foresight is unavailable, how can top management make
strategic decisions in high-technology industries? Our answer to this central
question is based on research concerning Intel Corporation’s strategic evolution3
as well as our analysis of more than a dozen case studies of major players in the
information processing and telecommunications industries.4

Strategic Dissonance
Our key premise is that in extremely dynamic industries5 alignment
between a firm’s strategic intent and strategic action is not likely to last.
Inevitably, strategic actions will begin to lead or lag strategic intent. Such

Support from Stanford Business School’s Strategic Management Program and from the Stanford
Computer Industry Project are gratefully acknowledged.The administrative assistance of Jiranee Tongu-
dai is much appreciated. We also like to thank two anonymous reviewers and the Editor for their
helpful comments.

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 Strategic Dissonance

divergences between intent and action cause “strategic dissonance” in the orga-
nization. While new strategic intent is necessary to lead the company out of
strategic dissonance, our key proposition is that new strategic intent must be
based on top management’s capacity to take advantage of the conflicting infor-
mation generated by strategic dissonance.
Not all dissonance, of course, is strategic. Companies continuously experi-
ence some level of dissonance as a result of routine disagreements and conflicts
because no division of labor is ever perfect and no project ever unfolds exactly as
planned. Companies need managers precisely to mediate and resolve these sorts
of frictions. Dissonance, however, is strategic when it signals impending industry
or corporate transformation. Here are three examples from Intel.
In 1970, newly-founded Intel Corporation introduced dynamic random access
memory (DRAM) products in the market. DRAMs replaced magnetic core mem-
ory as the standard technology used by computers to store instructions and data
as they executed programs, and Intel became the first successful semiconductor
memory company in the world. Throughout the 1970s and early 1980s, DRAMs
continued to be viewed as Intel’s core business. While the DRAM industry grew
tremendously during that period, the onslaught of Japanese entrants caused
Intel’s DRAM business to be hurt by the late 1970s. By the end of 1984, there was
serious disagreement within the company regarding the importance of DRAMs in
Intel’s future. The disagreement had been latent for several years. It was resolved
when, during 1984-85, Intel’s top management completed the drawn out process
of exiting from the DRAM business and realized that Intel had transformed itself
from a memory company into a microprocessor company.

In 1990-91, Intel top management faced a strategic decision about what to do

about the company’s RISC architecture efforts. During the 1980s, a middle-level
technical manager had developed the i860 RISC chip within Intel and had con-
vinced several higher-level managers of its commercial potential. The technical
development had been somewhat surreptitious because it was sold to top man-
agement as the development of a co-processor for the i486 chip but did in fact
involve a stand-alone processor. The managers involved in the i860 project
launched a successful marketing effort and top management had little real
choice but to adopt the i860 as a new strategic product. Commercial success
subsequently slowed down in the face of the competition of a plethora of other
RISC chips. But large amounts of Intel’s development resources had begun to flow
to RISC architecture efforts and there had developed two camps within the com-
pany with different views about the future of RISC versus CISC. After a protracted
debate, top management, in 1991, decided to reaffirm its commitment to the x86-
CISC architecture and to scale down the RISC effort.

In November 1994, a flaw in the first release of the Pentium microprocessor—

a routine event associated with most first releases of new microprocessors to
OEMs—triggered a discussion among technical users on the Internet which was
picked up quickly by CNN and other news media. Intel’s initial reluctance to
replace the flawed chips, except for those highly technical users that were likely
to engage in mathematical operations that could be affected by the flaw, created
an uproar and escalated the event into a full blown “Pentium processor crisis.”

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 Strategic Dissonance

While the national press hammered Intel for not being forthcoming enough in
replacing the flawed products with no questions asked, Intel’s OEM and distribu-
tion channel sales data indicated that demand for Pentium processors continued
unabated. After several difficult weeks of internal debate, Intel top management
decided to exchange all flawed Pentium processors for new ones simply upon
request. By that time, Intel’s top management had come to grips with the fact that
Intel’s prominence in end-user space, in part as the result of the Intel Inside cam-
paign started in April 1991, had dramatically changed the rules of the game for
Intel, and probably for all high-technology companies marketing to end-users.

Strategic Dissonance Signals a Strategic Inflection Point

A common thread running through these vignettes of strategic dissonance
is that they signaled that Intel had reached (DRAM exit, Pentium processor cri-
sis), or was about to reach (i860 RISC chip), what we call a “strategic inflection
point” (SIP) in its development. Inflection point has a rigorous mathematical
meaning6 but here we use it more loosely—metaphorically—to describe the
giving way of one type of industry dynamics to another; the change of one win-
ning strategy into another; the replacement of an existing technological regime
by a new one. These changes—witness the computer industry—create a “valley
of death”7 for the incumbents because they materially affect their profitable
growth trajectories. If an incumbent’s top management is able to come up with
new strategic intent that takes advantage of the new industry conditions, it can
traverse the valley of death and enter a new era of profitable growth. Otherwise,
it continues to survive with severely reduced performance prospects, or dies (see
Figure 1).
Unfortunately, it is very difficult for anyone in an extremely dynamic
industry, including top management, to clearly perceive the new industry equi-
librium, winning strategy, or new technological regime, that loom beyond a SIP.
Think about a computer-generated image being morphed from one state to
another—you cannot tell when one ends and the other starts; only the begin-
ning (old image) and the end (new image) are clear. In-between is a dizzying
succession of intertwined, overlapping, blurred, fuzzy images.
So, how can top management know when dissonance is strategic—
signaling a SIP—as opposed to a minor and/or transitory change in competitive
dynamics, strategy, or technology? How to tell signal from noise? Sometimes the
telling signs are quite obvious. For instance, in 1984, every clear-minded senior
manager in the telecommunications industry had to realize that Judge Green’s
“Modified Final Judgement” inaugurated a period of momentous change that
would transform the competitive dynamics in the industry in major ways.8 In
other instances, however, the telling signs may be subtle and intangible. For
example, after the Japanese had become powerful players in DRAMs, Intel man-
agers visiting Japan would come back with the feeling that they were viewed
with newly found derision—”Something changed; it was different now,” they
would say upon return. It took Intel’s top management several more years to

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 Strategic Dissonance

FIGURE 1. Strategic Inflection Point

NEW
with
adaptation

inflection point

without
OLD adaptation

Time

realize that the competitive dynamics, the winning strategy, and the key tech-
nological competencies in the DRAM industry had fundamentally changed.
In the face of a SIP, voices sounding danger ahead will emerge. These
voices usually rise form the middle-management ranks or from the sales organi-
zation: From people that know more because they spend time outdoors where
the storm clouds of creative destruction gather force and—unaffected by com-
pany beliefs, dogmas, and rhetoric—start blowing into their face. Some will flag
their concern to top management—and it’s wise to pay heed as it would have
been very wise to give serious weight to the troubled comments of the Intel
travelers. Other middle managers will just quietly adjust their own work to
respond to the strategic change. For instance, in the early 1980s Intel got down
to 1 factory out of 8 manufacturing DRAMs because the finance and production
planning people (middle-level managers) month-by-month allocated scarce
capacity from where it seemed unprofitable to where it seemed to be more fruit-
ful. Often, these words and actions don’t seem strategic at first glance: they seem
peripheral. But it is wise to keep in mind that when spring comes, snow melts
first at the periphery: That’s where it is most exposed.

The Need For Strategic Recognition

Managing strategic dissonance requires “strategic recognition”—the
capacity of top managers to appreciate the strategic importance of managerial
initiatives after they have come about but before unequivocal environmental

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 Strategic Dissonance

feedback is available. Top management’s strategic recognition that the set of

changing circumstances is a SIP happens in three key stages:
recognizing the growing divergence between what the company currently
puts forth as its strategy and the actions taken by its managers—what we
call here strategic dissonance,
asking the (anxiety provoking) question “is it one—a SIP?” and
trying to discern the newly emerging strategic picture and providing a
framework in which the divergence can be combated and new strategic
intent formulated.
The method of resolution is broad debate, involving different technical,
marketing, and strategic points of view, and representatives of different levels
in the organization. This takes time. Dealing with the strategic dissonance associ-
ated with a SIP is a fundamental test of the resilience of a company’s culture and
its leadership.
Strategic dissonance, strategic inflection point, and strategic recognition
are the three interrelated key concepts that answer the question of how top
management can decide on strategic intent in high-technology industries.

A Framework for Analysis

We propose a theoretical framework of five dynamic forces9 that shape
a company’s evolution and the emergence of strategic dissonance (see Figure 2).
This framework can help top managers determine whether manifestations of
dissonance are strategic and/or ask questions that help surface latent signs of
strategic dissonance.
The first of these forces—the basis of competitive advantage in the industry—
is determined by the industry factors identified by Michael Porter10 as key deter-
minants of the attractiveness of an industry: bargaining power of customers and
suppliers, the nature of the rivalry among incumbents, and the threat of new
entrants and of substitution. Technological change, legislation, or government
regulation can affect each of these elements and their relative importance. The
second force concerns the company’s distinctive competence: the competencies that
have made it possible to develop a competitive advantage and to survive.11 The
third force is the company’s official corporate strategy which reflects top manage-
ment’s beliefs about the basis of the firm’s current success and anticipated
changes in the familiar environment.12 The fourth force—strategic action—is what
the company actually does. Finally, the fifth force concerns the company’s inter-
nal selection environment which mediates the link between corporate strategy and
strategic action and the link between distinctive competence and the basis of
competitive advantage. The internal selection environment comprises adminis-
trative elements (e.g., resource allocation rules) and cultural elements (e.g.,
norms governing internal communication).13

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 Strategic Dissonance

FIGURE 2. Dynamic Forces in Firm Evolution

Basis of Competitive Advantage

in the Industry

Official
Strategic
Corporate Internal Selection Environment
Action
Strategy

Distinctive Competence
of the Firm

Source: R.A. Burgelman,“Fading Memories: A Process Theory of Strategic Business Exit in Dynamic Environments,” Administrative
Science Quarterly, 39, 1994

During some periods in a company’s history, these five forces are in

harmony: The company’s distinctive competence is consistent with the basis
of competition in the industry; its official strategy and the strategic actions of
its managers are co-aligned; and its internal selection environment is relatively
peaceful with no signs of strategic dissonance.
This was the case at Intel in the early 1970s. Intel had established itself as
a leader in semiconductor memories by pioneering a new semiconductor process
called metal-oxide-silicon (MOS) technology. This process technology allowed
Intel to increase the number of transistors on a chip while simultaneously reduc-
ing its production cost. This, in turn, allowed Intel to successfully introduce the
world’s first DRAM into the market in 1970. While other companies, notably
Advanced Memory Systems, had been able to design a working DRAM, they had
failed to develop a process technology to manufacture the new device success-
fully in volume. Process technology became Intel’s distinctive competence. Dur-
ing the next half a dozen years these competencies served Intel to remain the
dominant competitor in the DRAM business. During that period, Intel’s corpo-
rate strategy was to offer semiconductor memory chips as alternatives for main-
frame computer memories, and this strategy guided Intel’s strategic actions. The

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 Strategic Dissonance

internal selection environment routinely allocated resources to semiconductor

memories.
Over time, however, the dynamic forces shown in Figure 1 tend to
diverge and their harmonious relationships are broken, thereby creating strate-
gic dissonance in the organization.

Sources of Strategic Dissonance

Divergence of the Basis of Competition and Distinctive Competence

The most fundamental and often least readily visible source of strategic
dissonance derives from a divergence between the changing basis of competition
in the industry and the firm’s distinctive competencies; the latter becoming less
relevant for competitive advantage. This happened in Intel’s DRAM business. In
the late 1970s, Japanese entrants used their large-scale precision manufacturing
skills to obtain high yields early on in new DRAM generations, thereby outcom-
peting Intel, which had much weaker manufacturing skills. High yields had great
impact on unit cost, and this was a crucial advantage as DRAMs became a com-
modity product.
Companies often experience an inertial aftermath of success: They have
become sharply aware of the competencies that made them successful against
the initial competition and they continue to rely on these distinctive competen-
cies even when the competition changes. Also, companies usually organize
themselves in such a way that the employees representing these competencies
are likely to have the greatest influence in the strategic decision-making process.
Changes in the basis of competition thus often evoke inertial responses by
incumbents.14 Intel’s DRAM business, again, provides an example. Falling
behind the Japanese, Intel tried to compete by creating advanced products
based on the company’s strong process technology skills. Process technology
had been the technological competency that had given Intel its initial competi-
tive advantage. Process technologists continued to play the dominant role in
Intel’s DRAM product development for the 16K (kilobit), 64K, 256K, and 1 Meg
(megabit) generations, in spite of the industry-wide shift in the basis of competi-
tion toward manufacturing competence.
On the other hand, strong technological competencies may also evolve
in new, sometimes unanticipated, directions and provide the basis for generating
new business opportunities. Important examples at Intel are the invention of
erasable programmable read only memories (EPROMs) and, even more so, the
invention of the microprocessor. These developments have strategic repercus-
sions for the company’s existing core business and require difficult top manage-
ment decisions. The successful EPROM and microprocessor businesses soon
began to compete with Intel’s relatively weak core DRAM business for scarce
manufacturing resources. Later on, the increasingly strong microprocessor
business also competed with the weakening EPROM business. This internal

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 Strategic Dissonance

competition turned out to be advantageous for the company, transforming Intel

gradually from a lagging “memory company” into a leading “microprocessor
company.” Evolving technological competence, however, may also create funda-
mental strategic dilemmas. The development of the i860 RISC processor at Intel,
for instance, threatened to undermine the company’s strong core microprocessor
business based on the x86 architecture.
In sum, firm-level competencies and the basis of competition in the
industry often evolve along independent paths. Our framework suggests that
dynamically matching firm-level distinctive competencies and the basis of com-
petition in the industry is a tough top management challenge. It requires top
management to closely watch the evolution of the industry structure as well
as to be alert to the strategic implications of unanticipated new developments
in the company’s competencies.

Divergence between Stated Strategy and Strategic Action

A second major source of strategic dissonance, one that is usually more
readily visible, originates in the divergence between corporate strategy and
strategic action. One driver of this divergence is inertia in corporate strategy.15
Corporate strategy reflects top management’s beliefs about the basis of success of
the firm. Top managers usually rise through the ranks and are deeply influenced
by their perception of what made the company successful. Intel’s exit from the
DRAM business, for instance, was delayed by the fact that top management was
still holding on to Intel’s identity as a memory company, even though the com-
pany had become a non-factor in DRAMs with 2-3 percent market share by
1985. IBM’s slowness in taking advantage of the RISC microprocessor architec-
ture (which it had invented in the mid-1970s)16 was, no doubt, attributable, at
least in part, to top management’s perception of IBM as the leading “mainframe
computer” company in the world. Similarly, Microsoft’s relatively weak past
strategy in networking operating systems probably was, in part, due to their
corporate identity throughout the 1980s as the “desktop operating system” com-
pany. Intertwined with these inertial self-perceptions is emotional attachment
on the part of top management to the business that made the company success-
ful. As one middle-level manager put it in relation to Intel’s exit from the DRAM
business: “It was kind of like Ford getting out of cars.”17 Last, but not least, top
management often hesitates to change the strategy because the consequences
are not completely clear. For instance, Intel’s slowness in moving away from
defining itself as a memory company were, in part, due to the fact that DRAMs
were viewed as the company’s technology driver having been the largest volume
product (in units) historically.
If inertia in corporate strategy leads to change that is too slow, top
managers can also change the corporate strategy too fast—in ways that stretch
beyond what the company is capable of doing and the market is ready to accept.
In the early 1990s, Apple Computer’s CEO John Sculley was clearly in front of
his organization when he pushed the strategy of developing personal digital

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 Strategic Dissonance

assistants (PDA) and personally championed the Newton operating system.

Sculley’s strategic intent stretched beyond Apple’s available innovative capabili-
ties and the market’s readiness. At the same time, Apple was facing a major bat-
tle in its core personal computer business after the barriers that separated the
Macintosh’s niche from the rest of the PC industry weakened in the face of the
success of Windows 3.0. Sculley’s ambitious strategy for PDAs required the
development of new innovative capabilities while at the same time the demands
of the PC business required major cultural change to achieve greater cost con-
sciousness and discipline in product development. Apple could not do both, and
Sculley’s strategic goals thus created enormous, top-driven dissonance within
the organization.18
The other driver of this divergence are the independent strategic actions
taken by middle-level managers. During the late 1970s and into the early 1980s,
Intel’s new EPROM and microprocessor businesses began to compete with the
DRAM business for scarce manufacturing capacity. As noted earlier, middle-level
managers in manufacturing planning allocated scarce manufacturing to the new,
higher margin EPROM and microprocessor businesses, thereby gradually dimin-
ishing the role of DRAMs as Intel’s core business. In 1984, another middle-level
manager responsible for process technology development for static random
access memory (SRAM) and microprocessors made the crucial choice to support
a new process technology that favored microprocessors and specialty memory
products over commodity memories.19 This decision effectively decoupled the
commodity memory business from the rest of Intel’s business. Ironically, this
move turned out to be beneficial after the new strategic intent (Intel the
“microprocessor company”) was formulated.
While some actions may turn out to be helpful, there is also potential
danger associated with strategic actions of middle-level managers that diverge
from the official strategy. The technical and initial commercial success of the
i860 RISC chip as an unplanned stand-alone processor created a strategic
dilemma for Intel’s top management and extremely strong, eventually
divisive, tensions within the organization.

Role of the Internal Selection Environment

If the basis of competition in the industry, the company’s distinctive
competencies, the firm’s official strategy, and the strategic actions of middle-
level managers all start diverging from each other, how can a company possibly
survive? Research suggests that in the face of a SIP, a company’s internal selec-
tion environment may be more important for survival than its stated strategy.20
The role of the internal selection environment is to regulate the allocation of
the company’s scarce resources—cash, competencies and capabilities, and senior
management attention—to strategic action while the official strategy is in flux
and new strategic intent has not yet been formulated and articulated.
A company can continue to be successful for some time if its internal
selection environment selects actions that are consistent with competitive reality

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 Strategic Dissonance

even while becoming decoupled from the official (stated or implicit) corporate
strategy. The continued success provides then a time cushion for bringing corpo-
rate strategy back in line with strategic action. At Intel, for instance, the capacity
allocation decisions favoring EPROMs and microprocessors over DRAMs were
initially not driven by official corporate strategy. Rather, they were driven by
the internal resource allocation rule—maximize margin-per-wafer-start—that
favored products with greater profitability and hence greater competitive advan-
tage in the external environment. The deteriorating competitive position of
DRAMs required top management to make a fundamental strategic choice in
1984: Stay in DRAMs and invest several hundred million dollars to get on a par
with the market share leader in a commodity market, or exit from DRAMs and
concentrate key resources to become a leading microcprocessor company. This
strategic choice was facilitated by the results of the internal selection processes
which had already shifted the “mainstream” away from memories toward
microprocessors.
The internal selection processes leading up to the formulation of new
strategic goals critically depends on top management’s strategic recognition
capacity. One type of strategic recognition involves top management’s ability to
recognize the strategic importance of actions by middle-level managers who try
to tie a new business initiative to the corporate strategy—providing legitimacy
for the new business. For instance, the internal and external success of micro-
processors eventually made top management realize that Intel’s future lay with
becoming a microprocessor company. A second type of strategic recognition
involves top management’s ability to recognize the strategic importance of
actions of middle-level managers that diminish the legitimacy of an existing
business and decouple it from the corporate strategy. As an example, the allo-
cation of manufacturing capacity away from DRAMs and the decision by a
middle-level manager to give up a process technology that was important for
commodity memory products eventually helped top management recognize
that DRAMs were no longer a core business for Intel.21

Managing Strategic Dissonance

Strategic dissonance, strategic inflection points, and strategic recognition
are tools for managing the major transformations that companies must bring
about in the face of discontinuous change. As the company moves through the
valley of death, the old and the new basis of competition, the old and the new
distinctive competence, the old and the new strategy, and the old and new
strategic action are all in play together. Figure 3 shows a picture of the trans-
formation process.22
So, what are the characteristics of the internal selection environment and
what are the top management behaviors that help a company take advantage of
strategic dissonance and survive the turbulence of a SIP?

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 Strategic Dissonance

FIGURE 3. The Transformation Process

New
Strategic
Action

New New
Basis of Distinctive
Competition Competence

New
Strategic
Strategic Intent
Recognition

Old/New
Strategic
Action
Old/New Old/New
Basis of Distinctive
Competition Competence
Strategic
Dissonance
Old/New
Strategic
Intent

Strategic
Old
Inflection Point Strategic
Action

Old Old
Basis of Distinctive
Competition Competence

Old
Strategic
Intent

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 Strategic Dissonance

Help Internal Selection Reflect External Reality; Allow Dissent

Top management must help ensure that the firm’s internal selection
environment continues to reflect the real competitive pressures in the external
environment. A necessary condition is that the company has a management
information system that reflects how its businesses are really doing in the com-
petitive environment. This allows top management to ask sharp questions, on a
regular basis, about why the company’s businesses are performing the way they
are. Intel’s rule to allocate scarce manufacturing capacity based on margin-per-
wafer-start, for instance, forced the DRAM middle-level managers to come up
with their best strategic arguments for why the company should forego profits
by allocating scarce capacity to DRAMs. Constantly watching competitors—old
and new—is mandatory behavior for top management. Why are they strong
competitors? What do they do that we cannot do better? This is one set of ques-
tions senior managers should ask. In the DRAM case, for instance, Intel top
management should have asked why the Japanese new entrants into the
DRAM industry seemed to be getting much higher yields in manufacturing
from the start .
It is also important that the firm’s internal selection environment values
dissent and controversy surrounding the interpretation of the data. This is diffi-
cult, because organizations are uncomfortable with internal dissent. Debating
tough issues is only possible where people will speak their minds without fear
of punishment. The debate between CISC and RISC at Intel during 1990-91
strained this ideal at Intel. The debate became acrimonious at times; different
factions were beginning to engage in a civil war. People were voicing concerns:
“How will I work for so and so when this is all over?” The DRAM crisis did like-
wise. A key role of top management is to provide an umbrella against such fears.
Top management may not be competent to personally judge the issues but it is
up to them to create a fear-free internal selection environment. So, our advice
to top managers is: First, don’t shut people up; and, second, if they disagreed
and were right, congratulate them!

Don’t Dismiss Strategic Dissonance

A company’s capacity for getting through a SIP depends predominantly
on a very human issue: How the top management reacts, emotionally, to strate-
gic dissonance. This is no surprise. Business people, like all people, have emo-
tions, and a lot of emotions are tied up in the status and well-being of their
business. In spite of the best attempts at business and engineering schools to
inculcate rational analysis, when the business gets into serious difficulties or
key managerial assumptions are challenged, objective analysis takes second
seat to personal/emotional reactions.
In fact, the top managers in charge are likely to go through some varia-
tion of the stages of dealing with a catastrophe:
DENIAL → ESCAPE or DIVERSION → ACCEPTANCE → PERTINENT ACTION

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 Strategic Dissonance

Denial is prevalent in the early stages of almost every instance. To appre-

ciate this, read the annual report management letters of companies that, in ret-
rospect, we know were facing a SIP. Escape refers to the personal actions of top
managers. For instance, frequent public speeches on vague subjects given by
CEOs of companies facing difficult times or the move of corporate headquarters
away from the center of business action are signs of attempted escape. Diversion,
by contrast, refers to the worst kind of escape, often involving major acquisitions
unrelated to the core business that faces a SIP.
Effective top managers go through these first two stages as well, but they
are able to move on to the acceptance and pertinent action stages before it is too
late. Ineffective top managers are unable to do so and have to be removed.
Those that replace them are not necessarily more capable, but usually do not
have the emotional investment in the current strategy. In our view, replacement
of corporate leaders in the face of a SIP is far more motivated by the need to put
distance between the present and the past than by getting someone “better.”
Intel’s DRAM crisis became resolved when Grove went to see CEO Gordon
Moore and asked him what a new top management would do if he and Moore
were replaced. The answer was clear: Get out of DRAMs. Grove then suggested
that Moore and he go through the revolving door, come back in, and do it them-
selves—a forced way to put distance between present and past.

Formulate New Strategic Intent Based on Strategic Recognition

Top management must try to surmise how the new equilibrium of forces
in the industry will look like and what the new winning strategy will be, know-
ing that they cannot get it completely right. Getting out of the valley of death
associated with a SIP requires top management to develop a mental image of
what the industry will look like and the company should look like when it
climbs out on the other side. Top management must use the information that
is generated by strategic dissonance when trying to discern the true new shape
of the company on the other side of the valley. It must be a realistic picture
grounded in the company’s distinctive competencies—existing ones or new ones
that are already being developed. For instance, when Intel finally got out of the
DRAM business it had also become clear that the company had to be reconcep-
tualized as a microprocessor rather than a memory company. By that time, Intel
had moved from a silicon-based distinctive competence in memory products to a
distinctive competence in implementing computer architectures in silicon chips.
Coming out of a difficult period, top management is more likely to have
a sense of what they don’t want the company to become before they know what
they do want it to become. For instance, as middle-level managers in the DRAM
business experienced difficulties in obtaining capacity allocations, they proposed,
several times, that Intel restructure itself and give DRAMs their own manufac-
turing capability instead of sharing with other products. These requests helped
top management decide that they did not want Intel principally to become a
supplier of commodity type products. This decision was made before it was clear

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 Strategic Dissonance

to top management that Intel would become a leading microprocessor company.

Management writers use the word “vision” for this. But that is too lofty for our
purpose. Leadership here implies changing with the environment and the orga-
nization. Reality must lead top management rather than the other way around.
This is difficult because top management is expected to have vision.
Getting through the period of immense change requires reinventing—or
perhaps rediscovering—the company’s identity. Since companies and their lead-
ers are shaped by their past, this is truly hard. If top management got its experi-
ence running a hardware company, how can they and their key staff imagine
what it is to run a software company? Steve Jobs, for instance, must have strug-
gled with that at NeXT. It is not surprising that it took many years before he was
able to redefine NeXT as a software company and got rid of the desire to produce
esthetically pleasing, well-designed “computers.” Today, Intel is outgrowing its
identity as a leading microprocessor company and faces the challenge of redefin-
ing itself as a company that wants to be a supplier of building blocks for the
computing and communications industries.

Move from Strategic Intent to Strategic Action

Seeing, imagining, sensing the new shape of the company is only one
step. Getting there requires more wrenching actions. These moves we have
called strategic actions and they involve (re)assigning resources in order to
pursue the new strategic intent. The fact is, corporate strategy is realized by per-
forming a series of such strategic actions, and not via strategic planning. Strategic
plans are abstract, far away, and give managers a lot of chances to reconsider as
they go along—so, they don’t command the true attention their action-oriented
counterparts do.
Clearly, the wisdom necessary to guide a company through transforma-
tional changes cannot, as a practical matter, reside only in the head of the CEO.
If it did, he or she would have guided the company through those changes in
the first place. If, on the other hand, the CEO comes from the outside, chances
are he or she does not really understand the evolving subtleties in such situa-
tions. Middle managers have the hands-on exposure, but, by necessity their
experience is specialized, not company-wide.
What is needed is real-time mining of the middle managers’ insights,
exposing all that information to searing intellectual debate, and letting this fer-
ment take place until the shape of the other side of the valley is sufficiently clear
that a dedicated march in its direction is feasible. Once that starts, the ferment
needs to stop, and all hands need to be committed to this new direction. We
think, therefore, that there is an inverted-U type of relationship between the
intensity and duration of constructive intellectual debate in a company and its
long-term ability to manage through SIPs (see Figure 4).
At one extreme, too little intellectual debate means that middle managers
do not challenge one another as long as the favor is reciprocated. The result: A

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 Strategic Dissonance

FIGURE 4. Relationship between Adaptability and Internal Debate

H Strategic leadership

L
L Intensity and duration H
of internal debate

lack of strategic dissonance and a hard fall off the curve. At the other extreme,
too much intellectual debate paralyzes the company because most energy is used
up seeking to win the debate for the sake of winning rather than for the sake of
the company. Strategic action is delayed indefinitely and, again, a hard fall off
the curve. So, during strategic dissonance, top management must let go some
while they are not sure. (This is not easy: top management is paid for being
sure!) But then they must pull strategic action and strategy back in line and
direct the march. Strategic leadership means encouraging debate and bringing
debate to a conclusion.23

Take Advantage of the “Bubble”

Top management must deliberately use the company’s uncommitted
resources that accumulate in good times—what we call the “bubble”—by
responding to early signs of strategic dissonance and by supporting new initia-
tives before strategic dissonance emerges. This too is difficult, particularly so
when the prospects of the mainstream business in the foreseeable future con-
tinue to be favorable (abundant profits and growth expected ) and everybody
is very busy exploiting the existing opportunities. Senior and top management,
under such circumstances, are likely to pay only lip service to supporting new
initiatives; it is easy to delay action to “tomorrow.” When the prospects are not
so good, it is easier to take action. In the early 1990s, Apple Computer had about
$1 billion in free cash, but the prospects of the mainstream PC business looked
less good because Apple’s niche was not growing and was threatened by

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 Strategic Dissonance

Microsoft’s Windows 3.0.24 While the choice of strategic intent can be

questioned, John Sculley deserves credit for anticipating the need for change
in Apple’s strategy and starting the change process.

Manage Unanticipated Invention

While senior management should constantly look for ways to harvest
the benefits of unanticipated invention generated by the company’s technologi-
cal competencies, the first, and foremost, question should be: is this invention
useful to our core business? If not, where could we use it? Is the new area sug-
gested by this invention of interest to us? Does it make use of other competen-
cies we have? Implicit in these actions of senior management is the will to
terminate investment in areas that, after careful examination, do not fit the
firm. This may sound cold, but the willingness to terminate experiments has to
be viewed as an integral part of the process of creating such experiments. If such
will is lacking, eventually the weight of accumulated and undisposed of experi-
mentation will dissipate the bubble and inhibit the start of new ones.25

Culture is the Key

The internal selection environment that we are describing is one in which
there are both strong bottom-up and top-down forces. If the company is domi-
nated by the top-down force, chances are that it will efficiently march in lock-
step toward an important strategic intent, but the strategic intent better continue
to be the right one. If the bottom-up force dominates, chances are that the com-
pany will drift aimlessly from one limited strategic intent to another and dissi-
pate its resources. Obviously, if there is neither top-down nor bottom-up force,
the company will experience something like “Brownian motion.”
But how can these forces both be strong at the same time? They can, if
the company has the rugged, confrontational/collegial culture that is desirable in
high-technology industries. Such a culture has two attributes: First, it tolerates—
even encourages—debate (at Intel, the name for it is “constructive confronta-
tion”). These debates are vigorous, devoted to exploring issues, and indifferent
of rank.26 They are focused on finding what is best for the company (as opposed
to the individual or group). Second, it is capable of making—and accepting—
clear decisions; with the entire organization capable of supporting the decision.
An organization that has a culture that approximates these two require-
ments is a powerful adaptive (learning) organization. This is the culture that
works best when top management has to navigate between letting chaos reign
and reining in chaos. For instance, there was enormous contention in the CISC
versus RISC debate. There was rebellion within the Microprocessor Group
against its management. After a period of exhausting debate, everybody was
ready for a clear new direction. While a few people decided to leave, the adop-
tion and execution of the new direction unified everyone.

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 Strategic Dissonance

Other companies that have survived in extremely dynamic industries

by transforming themselves probably have a similar set of characteristics, even
though they shape them in their own way. Hewlett-Packard, for instance, has
such a culture (judging by the results), perhaps more so than any other large
company. Their history has been and continues to be a series of transformations,
all achieved by “peaceful means” in the hands of internal management. To see
this, compare their ability to move from instruments to computers (and their
growth spurt) with that of their major competitors in instruments. When com-
puters moved from minicomputer-based technology to microprocessor-based
technology, compare their performance with that of other minicomputer manu-
facturers. HP made the transformation with hardly working up a sweat. In
recent years, H-P has transformed itself again, becoming the world leader in
desktop printing27 and gradually working itself into a strong position in desktop
computers. H-P’s culture is more “SIP-ready” than any we can think of.

Conclusion
We started this article by asking: How can top management in extremely
dynamic environments decide on the right strategic intent? We have offered a
conceptual framework and three interrelated key concepts—strategic disso-
nance, strategic inflection point, and strategic recognition—for answering that
central question. Our conceptual framework helps examine the evolving link-
ages between a company’s distinctive (“core”) competencies and the basis of
competition in the industry, and its official corporate strategy and strategic
action. The research underlying our framework has revealed that, over time,
there will unavoidably emerge divergences between competence and basis of
competition, and between strategy and action. We view these divergences as
natural outcomes of the internal and external dynamic forces that move and
shake companies and industries. We also view the strategic dissonance that these
divergences create as an opportunity for top management to learn about the
changing reality of the competitive world that the company faces and the new
opportunities generated by its own competencies. Strategic dissonance signals
a strategic inflection point in the firm’s development trajectory and alerts top
management to the fact that the familiar picture of the industry is being mor-
phed into a completely new one—involving a fundamental change in the basis
of competition, requiring fundamentally different competencies, or both. Stra-
tegic recognition is top management’s major tool for dealing with strategic
dissonance and a SIP. Strategic recognition picks out of the mass of conflicting
information the elements that can form the foundation for new, viable strategic
goals. Top management’s capacity for strategic recognition is enabled in major
ways by the ability of the company’s internal selection environment to distin-
guish signal from noise. This, in turn, depends on the comprehensiveness,
depth, and rigor of intellectual debate among middle and top managers, which

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 Strategic Dissonance

is the cultural feature most telling of a company’s long-term ability to manage

through SIPs.

Notes
1. Gary Hamel and C.K. Prahalad, Competing for the Future (Boston, MA: Harvard
Business School Press, 1994). These authors introduced the idea of “strategic
intent.” See Gary Hamel and C.K. Prahalad, “Strategic Intent,” Harvard Business
Review (May/June 1989).
2. A current example concerns the impact of the Internet on the computer and
telecommunications industries. Few of the key players in these industries foresaw
the speed and force with which the Internet has evolved during the last 18
months. For a general discussion of the difficulty of foreseeing the implications
of new technologies, see Nathan Rosenberg, “Uncertainty and Technological
Change,” paper prepared for the Conference on Growth and Development: The
Economics of the 21st Century, organized by the Center for Economic Policy
research of Stanford University, June 3-4, 1994.
3. This research is reported in: Robert A. Burgelman, “Intraorganizational Ecology
of Strategy Making and Organizational Adaptation: Theory and Field Research,”
Organization Science (August 1991); Robert A. Burgelman, “Fading Memories: A
Process Theory of Strategic Business Exit in Dynamic Environments,” Administra-
tive Science Quarterly (March 1994); Robert A. Burgelman, “A Process Model of
Strategic Business Exit: Implications for an Evolutionary Perspective on Strategy,”
Strategic Management Journal (Special Issue, Summer 1996, forthcoming).
4. These case studies are used in our MBA elective course “Strategy and Action in
the Information Processing Industry” at the Stanford Business School. Some of
these cases were written at the Stanford Business School: George W. Cogan and
Robert A. Burgelman, “Intel Corporation (A): The DRAM Decision,” 1990; Bruce
K. Graham and Robert A. Burgelman, “Intel Corporation (B): Implementing the
DRAM Decision,” 1991; George W. Cogan and Robert A. Burgelman, “Intel Cor-
poration (C): Strategy for the 1990s,” 1991; Dan Steere and Robert A. Burgelman,
“Intel Corporation (D): Microprocessors at the Crossroads, 1993; Dan Steere and
Robert A. Burgelman, “Intel Corporation (E): New Directions for the 1990s,”
1993; Alva H. Taylor, Robert A. Burgelman, and Andrew S. Grove, “A Note on
the Telecommunications Industry in 1993,” 1994; Alva H. Taylor, Robert A. Bur-
gelman, and Andrew S. Grove, “The Wireless Communications Industry: After
AT&T-McCaw,” 1994; Thomas Kurian and Robert A. Burgelman, “The Operating
Systems Industry in 1994,” 1994; Jeffrey Skoll, David Zinman, and Robert A.
Burgelman, “The Consumer On-Line Services Industry in 1995,” 1995. Other
cases, written at the Harvard Business School, include: “The Global Semiconduc-
tor Industry in 1987”; “The Global Computer Industry; Note on the PC Network
Software Industry, 1990”; “Microsoft’s Networking Strategy; Mips Computer
Systems (A)”; “Motorola and Japan (A); The Transformation of IBM”; “Apple
Computer 1992, and Reshaping Apple Computer’s Destiny,”1992. These are all
published in David B. Yoffie, Strategic Management in Information Technology (Engle-
wood Cliffs, NJ: Prentice-Hall, 1994).
5. For a discussion of different types of dynamic environments, see Jeffrey Williams,
“How Sustainable is Your Competitive Advantage?” California Management Review,
34/3 (Spring 1992): 29-51. For a discussion of the managerial challenges of oper-
ating in “high-velocity” environments, see Kathleen Eisenhardt, “Speed and
Strategic Choice: How Managers Accelerate Decision Making,” California Manage-
ment Review, 32/3 (Spring 1990): 39-54.

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 Strategic Dissonance

6. Mathematically, we encounter an inflection point when the rate of change of the

slope of the curve (referred to as its “second derivative”) changes sign, for
instance, going from negative to positive. In physical terms, it’s where a curve
changes from convex to concave, or vice versa. In simplest terms, it’s the point at
which a curve stops curving one way and starts curving the other way.
7. Andrew S. Grove, “PCs Trudge out of the Valley of Death,” The Wall Street Journal,
January 18, 1993; “Invest or Die,” Fortune, February 22, 1993 (cover story).
8. Nevertheless, even in 1995 it is by no means obvious what the new competitive
equilibrium in the telecommunications industry will look like; what the winning
strategies and the dominant technologies will be. For instance, Bell Atlantic, one
of the most aggressive regional Bell operating companies (RBOCs) planning to
diversify into delivering video and television services, abruptly called a halt to its
plans in April 1995. See “Bell Atlantic Halts Plan for Video Services,” The New York
Times, April 26, 1995. Recently, AT&T decided to split itself up into three parts—
telecommunications services, telecommunications equipment, and computers—
in order to be able to compete in a more focused way in each of these dynamic
industries. One reason for the split-up was that AT&T experienced enormous
strategic dissonance as the RBOCs, in anticipation of the deregulation of the local
exchange business, were increasingly reluctant to buy telecommunications equip-
ment from a potential major rival.
9. Burgelman (March 1994), op. cit.
10. Michael E. Porter, Competitive Strategy (New York, NY: Free Press, 1980).
11. The concept of distinctive competence was first proposed by Philip Selznick, Lead-
ership in Administration: A Sociological Interpretation (New York, NY: Harper & Row,
1957). Distinctive competence is similar to core competence, but emphasizes the
relative uniqueness of the competencies that the company initially assembles and
the evolutionary processes through which they evolve. As a result of these evolu-
tionary processes, distinctive competencies have inertia and may become “compe-
tence traps.” See Barbara Levitt and James March, “Organizational Learning,” in
W. Richard Scott, ed., Annual Review of Sociology, 14 (1988): 319-340. For a discus-
sion of core competence see C.K. Prahalad and Gary Hamel, “The Core Compe-
tence of the Corporation,” Harvard Business Review (May/June1990).
12. See Robert A. Burgelman, “A Model of the Interaction of Strategic Behavior,
Corporate Context, and the Concept of Strategy,” Academy of Management Review
(1983); Gordon Donaldson and Jay W. Lorsch, Decision Making at the Top: The Shap-
ing of Strategic Direction (New York, NY: Basic Books, 1983); Karl E. Weick, “Substi-
tutes for Corporate Strategy,” in David J. Teece, ed., The Competitive Challenge
(Boston, MA: Ballinger, 1987).
13. Burgelman (March 1994), op. cit.
14. Arnold C. Cooper and Dan E. Schendel, “Strategic Responses to Technological
Threats,” Business Horizons (1976); William J. Abernathy, Kim B. Clark, and Alan
M. Kantrow, Industrial Renaissance: Producing a Competitive Future for America (New
York, NY: Basic Books, 1983); Michael E. Tushman and Philip Anderson, “Techno-
logical Discontinuities and Organizational Environments,” Administrative Science
Quarterly (1986); Barbara Levitt and James March, “Organizational Learning,”
Annual Review of Sociology, 14 (1988); Rebecca M. Henderson and Kim B. Clark,
“Architectural Innovation: The Reconfiguration of Existing Product Technologies
and the Failure of Established Firms,” Administrative Science Quarterly (1990);
Dorothy Leonard-Barton, “Core Capabilities and Core Rigidities: A Paradox in
Managing New Product Development,” Strategic Management Journal (1992).
15. Michael T. Hannan and John H. Freeman, “Structural Inertia and Organizational
Change,” American Sociological Review (1984); Henry Mintzberg and James
A.Waters, “Tracking Strategy in an Entrepreneurial Firm,” Academy of Management

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 Strategic Dissonance

Journal (1982); Danny Miller and Peter H. Friesen with the collaboration of Henry
Mintzberg, Organizations: A Quantum View (Englewood Cliffs, NJ: Prentice-Hall,
1984).
16. See for instance “Mips Computer Systems,” in Yoffie (1994), op. cit.
17. Burgelman (March 1994), op. cit., p. 41.
18. See “Reshaping Apple Computer’s Destiny 1992,” in Yoffie(1994), op. cit.
19. See “Intel Corporation (A): The DRAM Decision,” Stanford Business School case
PS-BP-256, p. 10.
20. See Burgelman (August 1991) and (March 1994), op. cit.
21. Theses two processes are called “strategic context determination” and “strategic
context dissolution,” respectively. See Burgelman (1996, forthcoming), op. cit.
22. A vivid example from the late 19th century concerns the transition from wind to
steam as the dominant means for powering ships. For a while, some ship builders
produced hybrids featuring both sails and steam engines. See R. N. Foster, Innova-
tion: The Attacker’s Advantage (New York, NY: Summit, 1986). Today, in the face of
uncertainty as to whether TDMA or CDMA will become the dominant technology
in cellular telephony, some telecommunications companies are planning to bring
out cellular phones that embody both technologies.
23. We think that strategic recognition and strategic leadership must meet the tests for
“statesmanship,” put forth by Henry A. Kissinger. Kissinger writes: “The ultimate
test of statesmanship...is a combination of insight and courage [emphasis provided].
Insight leads to assessments that define a society’s freedom of action, while cour-
age enables the statesman to act on his convictions before they are generally
understood. Great statesmen operate on the outer margin of their society’s
capabilities; weak statesmen tend to be overwhelmed by events.” See Henry A.
Kissinger, Review of “Churchill: The Unruly Giant” by Norman Rose, The New York
Times Book Review, July 16, 1995, p. 7.
24. See “Reshaping Apple Computer’s Destiny 1992,” in Yoffie (1994), op. cit.
25. For an assessment framework, see Robert A. Burgelman, “Designs for Corporate
Entrepreneurship in Established Firms,” California Management Review, 26/3
(Spring 1984).
26. Andrew S. Grove, High Output Management (New York, NY: Random House, 1983);
Andrew S. Grove, “Breaking the Chain of Command,” Newsweek, October 3, 1983.
There is some useful social science literature on the quality of decision making in
teams with dissent. One line of inquiry concerns the role of minority views in
increasing group performance. There is evidence that distinct minority points of
view help generate novel solutions that lead to improved group performance. See,
for instance, Charlan Nemeth, “Style without Status Expectations: The Special
Contributions of Minorities,” in Murray Webster and Martha Foschi, eds., Status
Generalization: New Theory and Research (Stanford, CA: Stanford University Press,
1988). Another line of inquiry concerns the use of conflict as a means for improv-
ing decision effectiveness. Two techniques for introducing conflict in decision
processes are “Devil’s Advocate” and “Dialectical Inquiry.” Devil’s Advocate
involves assigning an individual or group the task of criticizing a particular course
of action. Dialectical Inquiry involves creating a debate between opposing views.
See, for instance, Richard A. Cosier and Charles R. Schwenk, “Agreement and
Thinking Alike: Ingredients for Poor Decisions,” Academy of Management Executive
(February 1990). Much of this research, however, is based on experiments involv-
ing students in contrived settings. A study of how Lyndon Johnson used George
Ball as “devil’s advocate” in top-level government decision making during the
Vietnam war to isolate and defuse, rather than to integrate, a different point
of view suggests the potential pitfalls of some of these techniques. See Irving L.
Janis, Victims of GroupThink (Boston, MA: Houghton Mifflin, 1972) and Irving L.

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 Strategic Dissonance

Janis and Leon Mann, Decision Making: A Psychological Analysis of Conflict, Choice, and
Commitment (New York, NY: Free Press, 1977).
27. “How H-P Used Tactics of the Japanese to Beat Them at Their Game,” The Wall
Street Journal, September 8, 1994.

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