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Perspectives on building technology businesses and AcceleratorIndia from Cartezia

Rethinking Strategy

Thursday, July 27, 2017

Rethinking Strategy

Business strategy has been a key subject discussed in most business literature over the past 50 years. In working with science and technology firms over the last 30 years, in particular on the formulation, development and execution of commercial strategy, I have worked with many of the tools and insights that were thought to be cutting edge at the time. While these tools have all provided powerful insights, as a practitioner, I have come to recognise the limitations of different tools.

As part of the research we conducted in support of my new book with Shai Vyakarnam, ‘Camels, Tigers & Unicorns1, we characterised the different approaches to strategy.

There appear to be two main variables. The first is of course the fundamental basis of the approach and the second is the application of the tools. This allowed us to distinguish models and tools that were market centric; resource based; organisation based and integrated approaches. After all the objective of management in formulating strategy is to organise and deploy resources in the most effective ways into markets that provide the best opportunities. So, it comes as no surprise that the major models and tools reflect these imperatives.

The grid in Figure 1 below compares these different approaches. Tools based on influence and attribute models can play a powerful role in framing thinking about the overall challenges, which is why they are so widely used in leadership programmes, but they are less useful when framing specific strategies. So, for example, Porter’s early work on generic strategic options helped to shape management thinking but his firm-centric value chains have provided more usable insights for firms. Similarly, the ‘Blue Ocean’ approach, not with-standing its commercial success, suggested an approach based on avoiding the highly competitive ‘Red Ocean’, an attractive idea, but an option not open to most firms in the marketplace.

Prahalad and Hamel’s emphasis on core competences provided a powerful strategic anchor, based on understanding the capacity of a firm to shape and execute any particular strategy. For a long period of time my colleagues and I used Porter’s 5-forces model in conjunction with Prahalad and Hamel’s work to design effective strategies, especially for larger corporations-but we worried about the rather ‘static’ nature of these approaches which were better suited to more mature market conditions.

The dynamic capabilities approach formulated by Teece and others addresses some of these issues, and we have applied some of this thinking successfully, but again with more mature firms. What is missing from mainstream thinking, however, is an approach integrating market and resource views, which is where competitive advantage is actually generated. Johnson’s work on the economics of strategic diversity discusses these challenges but highlights the difficulties of creating a methodology usable by firms in their practical environments. Osterwalder’s work also tries to address this but unfortunately conflates business models with strategy, process and design.

What a new approach needs to address explicitly

Our work with early stage and high-growth firms has led us to realise the need for a new approach which addresses the following challenges:

Current approaches are based on a largely static view of the market environment, where the dynamic changes are not addressed explicitly. Our work over the past decade has confirmed that this is a serious weakness, especially where market structures and technologies are changing rapidly.

Figure 1: Comparing Approaches to Strategy Development

Most current approaches depend on insights from a small number of case studies, conducted mainly with mature firms or firms that have achieved celebrated success: very little of the data systematically covers a wide range of firms across their growth life-cycle.

New Approach based on Commercialisation Vectors

We have developed a new approach to Strategy Development, shown in red in Figure 1, which builds on the work of others, but critically depends on the definition of 12 Commercialisation Vectors, based on a meso-economic treatment of the ‘key forces’ first suggested by Schumpeter, which can actively shape the trajectory of all firms: this approach takes the macro-economic environment as a given but eschews the theory of the perfect firm, instead focusing on the dynamic drivers in the meso-layer, which determine competitive performance.

We plan to describe and explain this new approach in detail later this year, but to summarise briefly here: this new approach to Strategy is based on12 key vectors (and their sub-vectors) covering the key areas.

We define 4 ‘external’ vectors covering: Market Spaces (including new market-space-centric value chains, which reverse the logic of Porter’s firm-centric value chains); Proposition Framing and the Competitive Environment; Customer Definition; and Distribution, Marketing & Sales.

We define 6 internal vectors’: IP Management; Manufacturing & Assembly; Product & Service Definition & Synthesis; Technology Development & Deployment; Talent, Leadership & Culture; and Funding & Investment. 

Finally, we define 2 ‘trade-off’ vectors: Commercialisation Strategy and Business Models.

The contribution of these 12 vectors to the strategy of a firm can change significantly with firm maturity, as the Vector Plot in Figure 2 below illustrates for a single firm as it crosses the three Chasms along its growth trajectory

 

Figure 2: Changing Strategic Priorities as a Firm grows

We hope that this new approach will change the ways in which firms, their advisors and investors see strategy formulation, development and execution. If nothing else, we hope this approach will encourage business schools to teach courses in strategy which reflect some of the real complexities, based on the use of rich data not just concepts based on a few well-chosen cases studies.

 

1.      Phadke & Vyakarnam, ‘Camels, Tigers & Unicorns: Rethinking Science and Technology Enabled Innovation’, World Scientific Publishing, London, 2017.