Martin Reeves is Senior Partner, Boston Consulting Group and Director, BCG Henderson Institute. He is also co-author of “Your Strategy Needs a Strategy: How to Choose and Execute the Right Approach.” Please visit the original piece to leave any comment.
As the calendar advances towards a new year, it’s natural to look ahead and reflect on the strategic agenda for 2016.
There is no shortage of commentary on trends in our complex and dynamic world: interest rate prospects, capital flows, commodity cycles, reorientation of the Chinese economy, the advance of artificial intelligence and progress on climate change to name just a few.
Trendspotting is a helpful backdrop for strategy, but following a trend is not a strategy. Others may be better placed to exploit it; and sometimes, disruption is better than participation. And there is no “one size fits all” strategy: external opportunity must be matched with a firm’s starting position and internal capabilities to create a uniquely advantaged strategy. Speaking of strategy, when you decide that owning a business is what you want to do, of course, you have plans to get this to be as successful as possible. Yes, this will take time, but with an understanding of how having a strategy development plan could help you through this process, you may find that this could make such a difference in your business’s growth.
A good place to start these deliberations is by asking questions which expand how one thinks about strategy and competitive advantage.
Here are 10 questions to stretch your strategic thinking in 2016.
Thinking about Strategy and Competitive Advantage
1) How long will your game last?
- Traditionally, strategists focus on the question “How good is my game?” – but more companies are exiting the playing field altogether, as corporate mortality is on the rise (Die Another Day)
- Therefore we must pose a second question: “How long will my game last?”
- Build robustness on all time scales – do not optimize for short term only (The Biology of Corporate Survival)
- Shore up robustness both through structural levers (heterogeneity, redundancy, and modularity) and managerial ones (building feedback loops, fostering trust, minimizing uncertainty)
- The longest-lived companies are often family owned or controlled, because they implicitly employ many of the 6 robustness principles. Consider the long lived family businesses of Japan, with examples such as Sudo Honke sake (900 years) and Toraya confectioners (500 years)
2) Are you applying the right approach to strategy for each part of your business?
- Business environments have become increasingly diverse and dynamic
- Companies hence need to broaden their approach to strategy and execution beyond classical strategic planning and apply the right approach at the right time in each part of the business
- Segment your business environment on three dimensions: unpredictability (how much can I foresee), malleability (how much can I influence), and harshness (how much does the environment threaten short run viability)
- Closely match your strategic approach to your environment: choose from classical, adaptive, visionary, shaping or renewal approaches
- Alibaba uses a shaping approach, orchestrating a commerce ecosystem to shape its malleable environment while remaining flexible in the face of unpredictability
3) Are you placing equal emphasis on both running and reinventing your business?
- Business conditions change with increasing speed, and companies move through their life cycles twice as quickly as they did 30 years ago, requiring them to think simultaneously about both running and reinventing the business
- Use business model innovation to reignite growth with a new value proposition or operating model
- Avoid the traps of over-exploitation (myopic focus on running the business) and over-exploration (constantly reinventing the business without extracting value)
- Become an ambidextrous company which is able to employ multiple approaches to strategy at the same time
- PepsiCo runs a portfolio of well established brands (Pepsi, Lays, Fritos), while its reinvention teams constantly consider new opportunities and models
4) Are you over-relying on yesterday’s successful business model?
- Many successful firms do not explore enough and thus get trapped in an unsustainable dependence on the business models which were the basis for their historic success (Tomorrow Never Dies)
- Recognize that success breeds complacency. Keep generating options and renewing your success recipe
- Build the capabilities to compete across multiple strategic environments
- Google’s reorganization into Alphabet was in part driven by its desire “not to become ordinary” and safeguard its exploratory moon shots (GoogleX) while running its maturing search business efficiently
Where and How to Play
5) Are you adopting a sufficiently segmented and proactive approach to growth?
- At 3.6%, projected global growth in 2016 will be lackluster at best – excluding recession years, growth has been lower only in 4 years over the last 20
- But growth is higher in many cities and demographic sub-segments
- Create growth through innovation, rather than merely participating in it
- Adopt a mosaic approach to growth. Micro-segment the market and bet on megatrends like urbanization & sustainability, targeting with precision thriving industries, cities and customer segments
- Lululemon targets a young, urban clientele while riding the health megatrend wave
6) Do you know who is betting against your business model, and are you exploiting these signals to renew yours?
- Staying competitive requires understanding where and how disruption might occur, and pre-empting it by challenging long-held assumptions on how to compete
- “Mavericks”, which are forced to think and act differently than incumbents, are usually the ones which disrupt industries and change the basis of competition
- Conduct a “maverick scan”: look to the periphery of your industry and identify companies that can challenge the basis of competition and your business model
- Combine incumbent resources with a maverick mindset: build capabilities and strategic alliances to preempt, trump or neutralize outliers’ ideas
- Tesla’s battery technology is changing the energy landscape far beyond automotives – in spaces as apparently remote as home power and as nuanced as wine
7) Are you a product or an information business?
- Proliferation of information, and new ways of processing and communicating it are transforming many product businesses into information businesses
- This is evidenced by the increasing involvement of information-based competitors across traditional product sectors
- A product-centric mentality can produce blindness to both threats and opportunities
- Look at your business as an information-based attacker might and ask how you could be advantaged as an information player
- In addition, manage information as a trustee, earning the informed trust of your customers
- Amazon attacks Walmart on an algorithmic level by better predicting individual customers’ demand patterns, aspiring to ship even before order placement
8) Are you fully leveraging all the information available to you?
- Natural Language Processing (NLP) technology and other exciting advances facilitate obtaining insights from vast swathes of unexploited unstructured data
- Pay attention to and find creative ways to leverage new sources of data: text, sensor data, social networks; every interaction with a customer is a source of data
- Under-investing now risks falling behind. Develop analytical capabilities and talent, and be willing to pay the price
- Even internal functions like regulatory compliance will move from labor intensive and selective sampling to NLP-based and comprehensive scanning of email/phone records
9) Are you over-managing your learning and execution process?
- Higher rates of change mean that you need to be able to react and shape events faster – directive management then becomes a constraint in terms of both speed and bandwidth
- Foster organizational fluidity and allow teams to self-organize around new ideas and better ways of doing things
- Bring market mechanisms inside the company to permit this to happen
- Valve “boss free since 1996” allows employees to define and decide what projects are pursued and implicitly what products are developed
10) Are you engaging your employees in stretching your strategy?
- A healthy strategy process requires consistent challenge to avoid inertia and complacency. But fresh thinking cannot end at the executive level
- Start with Drucker’s or Lafley’s questions to nudge people towards new thinking
- Develop your own challenge questions, which focus employees on detecting change signals, challenging the status quo, employing different ways of looking at strategy and generating new ideas
- Mahindra’s War Rooms require all major decisions to be rigorously questioned and defended in front of a cross-functional team
2016 promises to be another turbulent year for the global economy, and one in which the inquisitive are more likely to survive and flourish. And that starts with questions from leadership which stretch the organization’s strategic thinking.