Strategic thinking in business has been through stages which emphasize different things. Early debates championed growth in new territories (taking the same products from local to national to global) or new market segments, or expanding the product range in existing markets. Later on, increasing value through vertical integration or diversification into new businesses became hot topics.
In the 1980s Michael Porter identified three generic strategies: cost leadership (value through low cost), differentiation (seeking uniqueness in some key aspects of the business) and focus (dominating a narrow niche market). Strong differentiation and low cost pursued together resembles the “Blue Ocean Strategy” proposed by Kim and Mauborgne twenty years after Porter.
In the 1990s Hammer and Champy championed business process re-engineering and there was a widespread proliferation of attempts to extract value from a new generation of information technology.
But what has really changed in strategic business thinking? And what hasn’t?
No change #1: Strategy is still a logically structured thought process.
Preparing a strategy calls for a set of logical steps.
First, analyze the present and imagine the future business context. PESTEL (Political, Economic, Social, Technological, Environmental, Legal) is a convenient checklist.
Second, conduct an internal analysis on the strengths and weaknesses of the organization and an external scan of opportunities and threats (SWOT analysis).
Third, design a high level vision and articulate it as a set of clear objectives.
Fourth, set up a structure, teams and processes to deliver your objectives.
Constantinos Markides in his book “All the Right Moves” (Harvard Business Press, 1999) argued that the key questions to ask are: Who is our customer? What are we offering? How will we offer it?
Changing business models is not something new either. Consider the disruptors of yesteryear. In the early 20th century, Michael Cullen in New Jersey disrupted the retail of household products with the world’s first self-service supermarket. After World War II Benneton pioneered franchising and colourful sweaters disrupting ready-to-wear markets. In the 1980s Swatch came out with youthful affordable wristbands that could tell time. The Body Shop sold cosmetics together with animal rights and forest conservation. IKEA sold stylish flat-packed furniture in huge showrooms at attractive prices. Decades after McDonalds globalized fast burgers, Starbucks globalized a coffee-based lifestyle.
But today’s disruptors differ in some substantive ways.
Change #1: The Age of Innovation is a new reality.
The big shift of our times surely comes from the immense possibilities offered by innovation, as technology shifts from peripheral phenomenon to center stage. The extent of the disruption has affected businesses as diverse as entertainment, book publishing, travel, household appliances, food, medical services, cars, trains and planes. It has changed the lives of people in rich and poor countries all around the world. Business model innovation and digitalization are the flavors of the day.
Many of today’s disruptors own very few physical assets - as Facebook, Google, PayPal, EBay, Air BnB and Ali Baba testify. Technology has enabled entrepreneurs to significantly increase the use of underutilized assets and create value with modest outlays. In particular, platforms connecting users and providers of practically everything real and imagined are offering immense scope for start-ups.
Existing companies and governments too are scrambling to do digitally whatever can be done digitally to expand their scope, improve their services, simplify their operations and reduce their costs.
Strategy thinking, working with the same four logical steps outlined above, must do their PESTEL and SWOT analyses in radically transformed settings. The “Who?” “What?” “How?” questions play out with different tools, new know-how, new consumer needs, new social expectations and new competitive landscapes. And all things are moving faster than ever before.
Change #2: The pace of change is accelerating.
Perhaps the most important change is the speed of change itself, for never before have lives changed as fast as they are changing today.
Take music for example. A little more than a century ago, if you wanted to listen to music you would have to get close to musicians. Thirty years ago, we had radio and TV, while vinyl records and cassettes had yielded to CDs. Today we get most of our music from clouds and listen to them through electronic devices.
What are the implications for strategy? Do we need a strategy for our company if it is out-of-date as soon as it we design it? The answer is yes, it is best to have some direction than none at all. Even fifteen-year plans are still relevant in some quarters (such as a country’s waste management strategy, prospecting for oil or city-planning). But start-up strategies would better work with 2 years as a long-term timeframe. And older companies must get used to questioning and revising their business models every 2 years or so.
No change #2: Culture still eats strategy for breakfast.
The emphasis on digitalization and technology-based business model innovation together with accelerating change is not always welcomed by all. Change that is forced on people is often resisted, sometimes even sabotaged.
In a faster game people must learn to change faster. But is there a limit to the pace of change people can take?
The biggest resistors to mechanical technologies in the nineteenth century and to information technologies in the second half of the last century were those whose jobs were threatened or those who had to change the way they worked. I remember my CEO’s PA as she got the first word processor in the company in 1983. “It has no value”, she said. “If a boss knows how to dictate properly why would anyone need this?” Managers jealous of their own authority who feel insecure with new chains of command are also wary of embracing change. Silos are hard to dispense with and silo mentalities harder still.
The lessons from many companies that died for failing to change fast enough are clear. Faced by death from obsolescence or starting a brand new life it is possible to opt for the new life and make it work. We do have living examples of companies that have successfully transformed themselves over and over again.
All of these companies have recognized that developing a culture of fast change is, and always has been, a pre-requisite for a successful innovation strategy.
A shift in strategic thinking has indeed emerged from the new realities of innovation and faster change. Still, the reasoning behind successfully creating value and the primacy of culture remain solid as rocks