BCG Constructing Strategic Spaces Nov2006

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sConstructingStrategic Spaces

431 Constructing Nov 06 11/1/06 12:57 PM

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Constructing Strategic Spaces

Strategic spaces are the fruits of free imagina-tion and disciplined construction. What arethey made from and how are they to be used?

At the most basic level, there is physical space, inwhich the tangible components of strategy canbe moved about. Every business must havesomething to offer, be it goods or services, andevery business employs tangible resources ofgreat value to produce that offering. These arethe “pieces” of the business game. It is nearlyinconceivable that the disposition of such piecesin physical space is of no strategic moment.Often it is the primary strategic consideration.

Consider your favorite retail store. Retailerslong ago learned that a store is a space in whichthe precise location of various items is of theutmost consequence for commercial success.Whether an item is on the top, the bottom, orsome intermediary shelf; which items are onneighboring shelves; and whether the aisle atissue is close to the entrance or the exit are allquestions subject to sophisticated research andheated debate. Where the pieces go matters.

In the petroleum industry, the physical piecesare not a product but a web of economicresources. As in the board game Go, once apiece has been placed, it can no longer be


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moved about. And instead of shelves and aislesin three dimensions, there is a swath of worldgeography to consider in two dimensions.

From Physical to Social SpaceIn real estate, the pieces are buildings, appar-ently positioned in the same physical space asan oil refinery, albeit on a different scale. Inreality, however, we have crossed an elusiveboundary into the realm of social space. A siteproposed for a residential development or aconcert hall is just as fully determined by twocoordinates on a map as the site of a refinery.But the attractiveness of the location is nolonger exclusively dependent on positions anddistances. It also depends on the surroundingsocial life.

One is tempted to propose that whereas physi-cal space is created and shaped by the relation-ship of objects to one another, social space iswoven from the relationships among individu-als and groups. As appealing as such a cleandistinction may be semantically, it is worse thanof no use in the context of strategy, where theultimate objective is to change human behav-ior. In interacting with other human beings, weinvariably rely on the shared symbolic or eco-nomic significance of objects, and our interac-tions with objects are without much meaningunless those objects signify something to oth-ers. The spaces of strategy are barren withoutphysical objects and cease to be strategic with-out social interaction.


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We see the same ambiguity at the boundarybetween the physical and the social when wereturn for a closer look at the retail store. Thestore is really a social space because, forinstance, the desire to have one’s productsstocked on shelves at eye level can be explainedonly with reference to the particularities ofhuman culture and meaning. The higher, themore prestigious—but too high is bad for sales.More pertinent still, in a social sense, is thewidth of the aisles. Extravagantly wide aisles area modern version of what Thorstein Veblendescribed as the sort of conspicuous waste thatis absolutely necessary to reassure the fortu-nate few that they have indeed made it.Confront them with sensibly spaced aisles andthey are gone. (If you don’t frequent retail out-lets, think of seat spacing in first, business, andeconomy class in airplanes.)

Most of us are far more comfortable puzzlingabout physical spaces than about their socialcounterparts. The natural sciences and mathe-matics, with certainties that facilitate both teach-ing and testing, offer practical methods to tack-le at least some elementary problems. The socialsciences—because it is beyond their power—lack easily applied theoretical insights. As aresult, in most situations the strategist who is indoubt as to whether a more physical or a moresocial perspective should be adopted would bewell advised to err in favor of the social. The beststarting point is always amid the full ambiguityof the borderland between the two.



Representational Space

The pieces of strategy need not be in actualmotion in order to be of spatial relevance.They may be at rest in physical or social spaceand still be somehow on the move. This occurswhen they undergo change. A budding andthen flowering willow tree will remain rootedin the same location but nevertheless will beclearly on a trajectory of transformation. A tra-jectory presupposes some notion of space. Acompany engaged in internal reorganization ismotionless physically. Its position in the mar-kets it serves remains the same, yet it will bemoving in a space of features as it sheds someof its characteristics and acquires new ones.

If physical motion is a change in location whileother features remain unchanged, transforma-tion is a change in features while locationremains unchanged. With that, we have crossedanother boundary and entered the territory ofrepresentational space. Unlike physical or socialspaces, there is nothing everyday and familiarabout representational spaces for the simplereason that we do not inhabit them. We mustmake them up.

Gas stations come in different sizes. They alsodiffer in terms of their share of revenuederived from the sale of general merchandise.These are two independent features that can easily be imagined as a two-dimensionalspace. Now imagine that a summer intern at alarge petrochemical company, with nearly


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unseemly eagerness to demonstrate his smarts,plots the gas stations of his employer and thoseof its major competitor on a graph. (SeeExhibit 1.)

The company will have some general policyabout what type of gas stations to operate andsome equally general beliefs about its competi-tor’s policy. The intern’s graph mercilessly dis-aggregates the effects of that policy and probesthe adequacy of those beliefs. Strategy muststart with probing, probing requires disaggre-gation, and disaggregation must take place inspace. A disaggregation in space yields a pat-

Share of revenue fromgeneral merchandise

Large

Gas station size

Small

LargeSmall

E X H I B I T 1

AN INTERN PLOTS TWO COMPANIES’ GAS STATIONS,FOCUSING ON SIZE AND SHARE OF REVENUE FROM GENERAL MERCHANDISE



tern or a shape that is often, as it is here, so farfrom random or obvious as to call for some vig-orous scratching of strategic heads.

Now let the strategic plot thicken a bit. Ouryoung intern discovers that these curious pat-terns seem to have something to do withwhether the gas stations are in urban or rurallocations. (See Exhibit 2.)

Now we have several very precise questions toask about what exactly is going on here strate-gically. Those questions may lead to a thor-ough review of strategy or to the conclusion

E X H I B I T 2

THE INTERN ADDS THE DIMENSION OF THE GAS STATIONS’ LOCATION IN URBAN OR RURAL AREAS

Share of revenue fromgeneral merchandise

Large

Gas station size

Small

LargeSmall

Rural

Urban

Rural

Urban


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that these patterns are a meaningless artifactof past decision making. Or they may lead to adiscussion of the relevance of the chosendimension—in this case, urban versus rurallocations—and hence to modified or entirelynew spaces. No matter: strategic thought ispropelled forward by spatial constructs.

But there’s a catch. Peering into an aquarium,one can easily distinguish between big andsmall, colorful and drab, aggressive and timidspecimens of fish. But unless there is some sus-tained thought as to which of these featuresmatter and why, this is nothing but idle sorting.

Too many segmentations are of this kind—driv-en more by the availability of data than bystrategic inquiry and conscious spatial con-struction. If data on the age and residence ofcustomers are readily available, chances arethat the strategic plan will include aPowerPoint slide on profitability according tosegments defined by those characteristics.Demand some thinking on whether and whythose characteristics are strategically signifi-cant, or ask whether other spatial constructshave been considered, and you will get blankstares. A segmentation arrived at in such amanner may look like an ingredient of strategy,but it is merely a deceptive simulacrum if thethought process that could influence otherminds and give rise to more thought has beenabsent. In strategy, the proof of the soufflé is inthe making.



The spatialization of gas stations could easily bemistaken for a purely representational con-struction uncontaminated by either physical orsocial considerations. On closer inspection,however, the space is pregnant with both and isof greater strategic interest for precisely thatreason. The availability of general merchandiseis not an abstract economic quantity but asocial feature that will attract different types ofcustomers whose differing demands must besatisfied by the overall design of the gas station.

The station’s location in an urban or a ruralenvironment could be taken as a proxy forphysical location, but it promises more perti-nent inquiry if interpreted socially. Con-venience shopping at gas stations is tied to certain lifestyles. Lifestyles tend to cluster ingeographic space, so a finer resolution (forexample, between suburban and exurban loca-tions) may be needed to gain a full strategicunderstanding. Here again we encounter theboundary of ambiguity. Purely representationalspaces, while theoretically possible, are likely tolack strategic relevance. Significant spaces willbe hybrids of the three idealized forms ofstrategic space.

A Rich Mixture

Gas stations and everything else sufficientlyrich in features to be of possible strategic inter-est can be embedded in many different spaces.Indeed they must be, for no single space can


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capture the full strategic richness, or it will loseall explanatory power. We must select combi-nations of a few features at a time for spatialconsideration and remain keenly aware of amuch larger space of spaces that surrounds us.Of those selected, many will be found wantingin one or two critical ways, but their very rejec-tion is potentially the seed of new spaces. Inthis manner, the process of strategic thoughtcan be considered the conquest of the space ofpossible spatializations.

This conquest does not culminate in the takingof some rich capital city deep in the center ofstrategic metaspace. There can be no canonicalspatialization for any strategic situation, letalone for classes of strategic situations. Theconquest must be a spreading out in the terri-tory and the establishment of powerful garri-son settlements from which further excursionscan be made. Ultimately, it must result in asuite of ever-changing spatializations—somecomplementary, some contradictory—that sus-tain strategic inquiry, articulate thought, andfuel debate.

Strategy is a particular form of social coordina-tion across scales of space and time that can bebridged only by articulated and shared thought.Strategic spaces are superb catalysts and vehi-cles for the thinking itself and for the articula-tion and the sharing. They are also—unlikenarratives in the form of vision and missionstatements—open-ended and highly plastic.



They provide a shared yet always debatablesense of where we are and where we could go,but they never obscure distant horizons or dim the awareness of alternative paths anddirections.

Thought must precede strategy. The first mani-festation of thought that is communicable, andhence capable of influencing the thinking and behavior of others, must be spatial. Thespatial mode of thought alone is not likely toresult in the finished product of strategy oreven to resemble it much. But it is a promisingplace to start.

Tiha von Ghyczy

Tiha von Ghyczy, a former vice president at The BostonConsulting Group, is a fellow of the firm’s StrategyInstitute. He teaches strategy at the Darden School ofBusiness at the University of Virginia. He is workingwith Bolko von Oetinger, a senior vice president anddirector in BCG’s Munich office, on a book about spa-tial thinking in strategy.

You may contact the author by e-mail at: [email protected]

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© The Boston Consulting Group, Inc. 2006. All rights reserved.


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BCG Constructing Strategic Spaces Nov2006

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