Your Strategy Needs a Strategy

We live in a business world that is in constant flux. But when you learn and understand the five strategy archetypes and how to execute them, you will master your journey through this turbulent land of opportunity.

In Your Strategy Needs a Strategy, authors Martin Reeves, Knut Haanæs, and Janmejaya Sinha explain how to navigate these various approaches and avoid common pitfalls.

With a solid foundation of the five archetypal approaches, create a “pyramid” of strategy application. Combine multiple approaches and top the process off with solid leadership.

TOP 20 INSIGHTS

1. A classical strategy approach, i.e., “be the biggest,” should be deployed in relatively stable and predictable markets with established competition. Homogenous business models are more likely to experience modest growth rates and few surprises or disruption. Most traditional businesses fall under this category but beware of the assumption that it applies to yours.
2. The turbulence of business return on sales has more than doubled since 1950, which has forced classical industries to re-think their approach. Analysis by BCG Strategy found that the top three market-share leaders’ probability of also being the top three profitability leaders declined from 35% in 1955 to just 7% in 2013.
3. An author-created survey found that nearly 90% of firms intended to employ a classical approach of detailed forecasts, and 80% translate those into long-term plans. Classical shouldn’t mean mechanical or overly complex, however. Use familiar tools to achieve new, uncomfortable, and surprising insights.
4. Emphasize scale if your business is among the top three in your industry. If not, focus on differentiation, especially if your targeted niche segment is sizeable. Products or services must be distinct and valuable to succeed. DHL invested $10 billion to enter the U.S. express freight business but struggled to compete until it focused on international delivery.
5. If you choose a classical strategy, you still need to adapt to slow but significant changes. Electrical utilities have deviated little over the last century but have begun to diversify into alternative energy sources. UPS employed a classical strategy in 1907 then adapted to e-commerce when it invested billions per year on IT systems.
6. Businesses should apply the adaptive strategy, i.e., “be fast,” only when it operates in an environment that is both hard to predict and hard to shape. Examples include software, fashion, and any product that relies on minerals or resources, such as semiconductors.
7. Adaptive business models yield more consistent performance if you continually invest a portion of resources into the exploration of new options or adaptation. A simulation of 30 adaptive strategies executed within a turbulent environment showed more frequent but smaller drops in profit compared to a classical strategy.
8. Continually refresh your data on external change and have the analytic capabilities to uncover hidden patterns. Progressive Insurance uses its Snapshot program to track and analyze driver patterns, which creates real-time risk profiles for each customer. CEO Glenn Renwick called Snapshot one of the most important things he’d seen in his career.
9. An adaptive strategy can only succeed if you refuse to get comfortable. This attitude underpins company culture. Netflix has an internal reference guide to “Freedom and Responsibility” that says employees follow processes exceptionally well, but it strips a company of its ability to adapt quickly. Netflix tries to eliminate rules whenever possible.
10. The visionary strategy approach, i.e., “be first,” should only be deployed when creating or recreating an industry. This strategy must be timed precisely to succeed, however. Megatrends that emerge, new technology, or consumer dissatisfaction with the status quo trigger the pivotal moment to act.
11. Visionary approaches are commonly associated with start-ups, but established firms should familiarize themselves with this approach — if anything, to understand how companies can disrupt or help your industry. Genomic analysis firm 23andMe made DNA breakdowns available to the public. This data has become valuable not just to customers but to pharmaceuticals and hospitals.
12. Of companies that intended to employ a visionary strategy, 95% still used a classic development approach that included detailed forecasts. There are four steps to a visionary strategy: detect an opportunity, create a clear vision of what you want to achieve, “sketch” a plan that can be changed, and get people excited about it.
13. Don’t confuse detailed plans with clear direction. Expect to adjust a visionary strategy as you go. Ninety percent of entrepreneurs fail. If you do manage to become the first, you may not be for long. Once you establish your business, you may need to adopt other approaches to sustain a competitive advantage.
14. You can deploy a shaping strategy when an opportunity arises to write or rewrite an industry’s rules at a time of evolution. This approach works best in highly fragmented, young, and dynamic industries, freshly disrupted industries, or new markets. Win this strategy through co-development of the market and industry with multiple players.
15. Shaping strategies focus on the ecosystem’s mutual value proposition. Apple focuses its efforts on the development of the App Store ecosystem to attract developers and users rather than hyper-focus on a particular app. Ask yourself what part you play in your business ecosystem and how you can collaborate with other players to create value for everyone involved.
16. A shaping strategy typically requires that you build a platform on which your desired ecosystem can grow. Examples include a digital marketplace, supply chain orchestrator, or digital distribution channel. The strategy is to manage the platform by controlling a few key variables, adding incentives, and making it unattractive for rivals to compete.
17. Adopt a renewal strategy when your industry or company displays low or limited growth, company funds are on the decline, your firm has suffered an internal or external shock, or your situation poses a viability risk for you. This strategy is also appropriate when your industry or company has restricted access to capital.
18. Painful cutbacks are not enough to survive in a turbulent business environment. Instead, think long-term by adopting a three-step renewal approach. First, economize to stay afloat, then pivot to a strategy of innovation so that the company can remain competitive or even visionary in your field. Lastly, use that innovation to facilitate growth.
19. Large companies that operate in multiple business environments can benefit from an ambidextrous approach to strategy. Lockheed Martin has used a separation approach as far back as 1943. Handle this approach in four ways: Separation of strategies between subunits or functions, switch between approaches, self-organize, or rely on an external ecosystem.
20. Global connectedness requires leaders to be more vigilant to changes than ever. Crises are no longer limited to one industry or region. Analysis revealed that roughly 53 out of 70 industries studied are so turbulent that businesses progress through various life cycles in half the time compared to 60 years ago.

BONUS STRATEGY: AMBIDEXTROUS

BE FLEXIBLE

Ambidexterity is not a “color” on our symbolic palette, but rather a technique for mixing those colors to achieve the desired result.

Global businesses operate in multiple business environments that cannot operate with a “one size fits all” strategy. As a result, each unique geography, market, and product requires a different strategy or combination.

PepsiCo pursues a classical scale and positioning approach but mixes strategies depending on the situation. The company employs an adaptive strategy that responds to shifts in consumer behavior. Products and services test in one country before rolling out on a global scale.

As former PepsiCo CEO Indra Nooyi said, any large company must both run and reinvent the business in each business it operates inside.

Ambidextrous strategy is challenging to implement because it requires a combination of measures that can be diametrically opposed. Research by The Boston Consulting Group (BCG) found that, between 1960–2011, less than two percent of U.S. firms managed to outperform during both stable and turbulent periods simultaneously.

THE FOUR APPROACHES TO AMBIDEXTERITY:

1. Separation: Deliberately manage which approach to strategy belongs in each subunit; division, function, etc.
2. Switching: Manage a shared pool of resources and switch between approaches over time or mix them as needed.
3. Self-organization: Each unit chooses which strategic approach to implement.
4. External ecosystem: Different approaches are sourced externally through an ecosystem of players that self-organize.

ESSENTIAL TRAPS TO AVOID:

• As with the adaptive strategy, beware of planning for the unplannable. Avoid being too rigid in your approach.

Be open to discovery. Apple uses several approaches depending on its function. The Apple Store is a shaping approach; the iPhone was and continues to be visionary while shaping the manufacturers’ ecosystem. The company adapts to changing needs and those it anticipates, too, while scaling the company to remain a global leader.