Strategy lasts. Derived from the title of ancient Greek government officials charged with rallying resources to fuel military campaigns, refined in China, then ported back to the West by Napoleon, the science or art of coming together to agree on a goal, and the method to achieve it, is an activity that like farming or governing or writing poetry distinguishes human from animal.
As environments change, strategy evolves.
- During the economic shocks of the 1920s, strategists turned their attention to predicting and planning for economic cycles. The study of economic cycles was born.
- From the 1950s to the 1990s, as single businesses grew into multi-business corporations, titans like the Mellons and Rockefellers began exploring techniques to align more complex organizations, strategists developed SWOT analyses, game theory, and industry analyses (like Porter’s Five Forces). Long-range planning was born.
- Since the late 1990s, as large companies began struggling more frequently with faster competitive environments and nimble attackers, attention shifted again toward disruptive innovation, hyper competition, and business model innovation.
Strategy evolves each time through the same pattern: the environment changes, strategists try new ideas to address the changes; companies that adopt the ideas early win.
We are now experiencing a fourth shift in the evolution of business strategy. The pace of change is accelerating. Digitization, growing political-economic uncertainty, and changes in the environment are forcing us to compete not just at a faster pace but also at a constantly accelerating pace.
Companies continue to run like centrally planned economies and maintain hierarchical reporting structures that are simply unable to deliver the speed and agility success that the future requires. Opportunities appear and disappear before information can move up, leaders can make decisions, and orders are cascaded back down. An annual and even quarterly strategic rhythm cannot keep up.
I’ve interviewed about 120 business innovators and experts over the last three years to try to understand what the new, emerging strategic paradigm will look like. Seven key shifts are underway.
- From employee to owner mindset
- Seeking strategically
- From implementing plans to learning through experiments
- From one business model to an ecology of business models
- From reporting structures to political relationships
- From linear execution to agile scaling
From employee to owner mindset
The idea persists that start-up entrepreneurs are the driving force of innovation and progress. But our research shows employees, not entrepreneurs, are behind 77% of the most transformative innovations over the last three decades (from the Internet to email to DNA sequencing). To activate employees, forward-looking companies are embedding an ownership mindset that encourages people to constantly look for innovative opportunities.
Typically CEOs I interview tell me, “We don’t need more ideas; we need to implement the ones we already have.” But digging in reveals their issue is idea quality, not quantity. In the past, strategic planning produced two or three big strategic bets. Today, thriving companies are continually churning out thousands. Amazon.com, for example, launched cloud services, voice-activated devices, tablets and video services, not just new e-commerce categories. To make this flow of ideas valuable, you need to ensure your people are seeking strategically. They must build a robust strategic filter. They must know your mission, vision, and priorities so they can filter their ideas quickly and only pursue or propose those aligned with your strategy. Unfortunately, only 40% of managers can name even two of their company’s top strategic priorities.
When we think about growth, we typically think of new customers or products. But growth can come from innovations across a full spectrum of dimensions, from distribution to processes to people policies. At Outthinker, we have our clients seek ideas across eight dimensions. We call these the “8Ps”: product, pricing, placement, promotion, positioning, processes, physical experience, and people. By looking in more places, you can funnel more ideas into the strategic filter you designed in “seeking strategically” above.
In the past, growth strategies entailed choosing and pursuing three to four growth ideas per business. Today, winning companies manage a portfolio of 30 to 40 ideas per business continuously. We have found you can generate this volume of ideas, and increase your chances of ensuring those ideas are truly innovative, by adopting IDEAS, a five-step approach when managing your strategy ideation efforts: Imagine the long-term future, Dissect your issues by looking for unusual areas of opportunity, Expand your option set by generating hundreds of ideas, Analyze those ideas in a manner that ensures disruptive ideas stay alive, and then Sell those ideas strategically to key stakeholders. “Imagine-Dissect-Expand-Analyze-Sell” gives you more, bigger IDEAS.
From implementing plans to learning through experiments
In days when pursuing new ideas was costly, when you had to build a factory and hire experts, companies had to design carefully calculated plans. At McKinsey, they taught me to drive for a solution you are 80% confident in before making a decision. But today, 3D printing and on-demand talent dramatically reduce the cost of trying something new. As a result, forward-looking companies are shifting toward Colin Powell’s “40-70” rule: as soon as you are 40% to 70% confident in your plan, go with your gut, take action. Run a 5-5-5 experiment – 5 people, $5,000, for 5 weeks – and see what you learn. Your strategy then becomes not a set of vetted priorities but a portfolio of experiments. But you have to be ready to see failure as part of the learning process. As Jeff Bezos wrote, “Given a ten percent chance of a 100 times payoff, you should take that bet every time. But you’re still going to be wrong nine times out of ten.”
From one business model to an ecology of business models
The entire theory of “disruptive innovation” rests on the assumption that businesses operate on one business model. They are disrupted when forced to choose between new, better business models that would threaten their core business model. But disruption is going away as a force for change as businesses are learning ways to disrupt their market without disrupting their business. You can today have multiple business models, build a portfolio of business models, which leads to greater sustainability. A crop field of one type of corn is easily wiped out by a new disease. But a diverse ecosystem made up of of various plants is resilient. Microsoft, for example, still sells large enterprise licenses while it simultaneously offers subscription services. It builds platforms of communities (LinkedIn, Skype, Xbox) while simultaneously having an army of salespeople selling in a more traditional way.
From reporting structures to political relationships
Most corporations exist as centrally planned economies in which a central authority makes decisions about how financial resources, talent, customer relationships, and brands should be deployed. We have given up central planning in our economies but not yet in businesses. Forward-looking companies are embracing a new paradigm in which people can act within a network of political relationships to create value rather than follow the dictates from above. The corporation’s role is to enable people to connect to each other and self-organize. Red Hat has embraced the “open organization,” the US military has adopted “teams of teams,” and Zappos employs “holacracy.”
From linear execution to agile scaling
Finally, we see that the agile approaches that have transformed how software is made making their way into other areas of business. Multi-disciplinary teams come together temporarily to advance a project or solve a problem. They hold daily scrum meetings rather than quarterly review rituals. Their roles change weekly. Google’s approach to this is rooted in their OKR (Objectives and Key Results) methodology. Other technology companies assemble “growth teams”. And now even large companies in financial services, retail, and consumer products are learning to embrace a new, faster paradigm to getting things done.
Put these together and we see a very different approach to developing strategy. It still requires knowing where you want to go and unifying paths to get there, but instead of intermittent boardroom discussions in which leaders make choices they are confident in, we see growth emanating from the middle out (rather than top down) in the form of thousands of experiments and ideas explored by individuals and teams.
Are you adapting? Or will you be left behind?