By: Kay Plantes
Unpredictable, turbulent markets and fluid industry boundaries characterize today’s global economy. Yet our approaches to strategic planning, formed in the closed markets of the Industrial Age, often assume exactly the opposite. As a result, companies are mired in commoditization, industry disruptions from unexpected competitors, stalled growth, and tentative strategies. To gain the agility needed to thrive in today’s complex and demanding open markets, strategy must become an innovative design process focused on value creation, says Kay Plantes.
To gain the agility needed to thrive in today’s complex and demanding open markets, strategy must become an innovative design process focused on value creation.
Why approach strategy as a design versus planning process?
Over the past 30 years, developed economies have made, and developing economies are making, a fundamental transition from the protected markets of the industrial economy to the open markets of the information economy. This change has created enormous challenges across most industries, but is also presenting companies with unlimited opportunities, including huge new untapped markets, continual breakthrough innovation, and the potential for very rapid growth.
In the Industrial Age’s protected markets, scale and vertical integration created competitive advantage and drove profitability. Execution separated winners from losers. Company desires, far more than customer needs, determined what was offered to the market.
In open markets, vertical integration has given way to complex supply chains. With a falling price of market entry, industry-leader advantages have become obsolete, and protection is a thing of the past. Drastic change in media markets provides just one example.
The ability of a company to achieve its aim now depends on the design of its businesses and their alignment with each other and with the external environment.
With greater information and more alternatives, customers came into power. Companies offering the most value win orders but not necessarily loyalty, and, price drives purchase decisions. The ability of a company to achieve its aim now depends on the design of its businesses and their alignment with each other and with the external environment. These are basic tenants of systems thinking. Strategy is no longer about planning, as it was in the Industrial Age; rather, strategy work must focus on the design of the business.
A new approach to strategy
What founder Michael Lurie calls agile strategy—is based on five primary design principles that collectively drive customer and company value. (Note: I work with Michael as part of the Agile Strategy Institute.)
Identify target micro-markets as a continual process.
In an open economy, it’s very easy for competitors to build new business models that better serve subsets of your customers. Thus you need to look at your current and prospective markets through the lens of a microscope, rather than as one whole, to identify risks and opportunities for market share gains in small subsets of customers and prospects within the larger market that you serve.
Continually innovate your business models.
Every business has one or more business models, its design for creating superior value for a target market in exchange for profits, cash flow, and other stakeholder returns. In open markets, a business model must offer either (1) a hard-to-copy lowest cost position or (2) hard-to-copy benefits that a targeted micro-market will pay a premium to receive. Companies must create deep skills in business model innovation, not just process and product innovation.
Build an evolving portfolio of business models.
The fragmentation and volatility of today’s markets mean that companies, even small ones, must build a continually evolving portfolio of businesses, each focused on one of the granular markets. The portfolio itself must be reviewed in light of rapidly changing markets and companies must seek a balanced portfolio composed of maturing, growing and emerging businesses.
Achieve efficiency and create competitive advantage through platforms.
The art in designing a company strategy is to identify the shared resources, processes, and solutions (i.e., platforms) from which each business in the portfolio draws and to which each contributes. Apple’s ability to create platforms is one of the reasons it has the lowest R&D spend per dollar revenue among top US innovators.
Shape a supportive ecosystem.
Your markets are not the only ones fragmenting; so are all the elements required to produce and deliver solutions to these markets. While this fragmentation is essential to unleashing the open market’s wealth-creating forces, it creates a coordination problem at the level of the ecosystem—and confers competitive advantage to the company that best solves that problem. Microsoft is a great example of a company with a stellar ecosystem in the non-mobile IT world.
In today’s open markets, only A+ strategies cut it. Without superior design, execution becomes complex and unfocused, tying companies in knots and reducing value. To maximize company value, companies must become resilient, able to continually explore and pursue new, rapidly growing opportunities, while managing or even exiting other markets and businesses quickly and ahead of market declines. Become agile by adopting the design principles of agile strategy.
By Kay Plantes
About the author
MIT-trained economist Kay Plantes is a strategy consultant and author of Beyond Price: Differentiate Your Company in Ways that Really Matter (Greenleaf Book Group, 2009). She writes a blog on business model innovation at plantescompany.com/blog.