Digital ‘Native’ Strategy and the need for Agility

April 11, 2017
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Strategy in business is about wanting to win. Winning is about seeing a gap, having an advantage and seizing it. Strategy is what you do to create a competitive advantage in order to win. Strategies used to deliver value for the long term but now in today’s environment of accelerating change, competitive advantage is more transient and so perhaps the best strategy of all is to achieve the agility to constantly refine, modify and, when required, pivot. No strategy is sustainable for the long term but the achievement of agility is the best chance you have of survival.

There’s a lot of talk about agility, culture, innovation, platforms, acting like a start-up, disruption and change, but very little about strategy and agility.

The business and consumer landscapes are changing. Fast. We stand at a point in time where the acceleration of change in almost every aspect of our lives is exponential.

We need a new way to look at, and approach, strategy.

A business may have one over-arching vision where the strategy moves to a plan and a set of goals, from which you derive the tactics as to how the plan is executed. However, strategies are often seen as set in stone and just to be followed and rarely revisited. Right now with everything changing so fast we need a digitally-native strategy that’s capable of winning over and over, catering for these rapid changes in consumer behaviour, technology and infrastructure. A strategy that has pace, flexibility and can adapt to changes which may not have been foreseen when the strategy was devised.

In line with that is the need for agility and in order to become more agile we need to provide more autonomy and purpose to those who are at the coalface of change. We may need to look at what the strategy is achieving and if it still fits with the vision and more importantly the marketplace as it too changes, e.g. how a company is going to achieve or maintain its vision with a strategy that needs to be re-assessed on a regular basis as the vision is realised.

In his book Good Strategy/Bad Strategy Richard Rummelt stated;

“In any organisation there’s always managed tension between the need for decentralised autonomous action and the need for centralised direction and coordination.” 1

Today’s digitally-native organisations are making huge efforts to retain the culture and agility of a start-up as they scale because they understand with that fluidity comes success.

Here’s two scenarios for you..

Kodak. Invents the digital camera, doesn’t seem to see the landscape changing or even consider that it might be changing because it believes it dominates the market and because it has no internal disruptors, it moves too slowly to adapt and ultimately pays the price. Throughout this process the whole market is changed by other factors such as social media, user generated content and cloud infrastructure not to mention solutions like Amazon web services which means any competitor can deploy at scale from a very low entry point. And so the market continues to disrupt itself, not just once but many times. Isn’t your smartphone now a camera? At what point does your car become part of that camera also?

What if Kodak had spotted the likely disruption to its market from the digital camera it invented? Would it have changed its strategy? Could it have changed its strategy? And what would its strategy have been?

Let’s take Tesla and more specifically, Elon Musk as the second example. In a blog on the Tesla site 2 August 2006 he wrote;

The Secret Tesla Motors Master Plan (just between you and me):
Build sports car
Use that money to build an affordable car
Use that money to build an even more affordable car
While doing above, also provide zero emission electric power generation options
Don't tell anyone.

That in itself shows vision but also strategically how he was going to get there. Not only has he done this but he’s set in motion SolarCity, Tesla, and SpaceX. In addition he has also envisioned a high-speed transportation system, Hyperloop and a VTOL supersonic jet aircraft with electric fan propulsion.

Was that one strategy or was it a number of fluid strategies that evolved over time, in the space of just 8 years? And this clearly demonstrates how 50 percent of the S&P 500 can be replaced over the next 10 years and how the lifespan of a company has now dropped from 60 years in 1958 to just 16 years today! 2

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In order to be as agile as this you need to have a strategy that plays to continually moving parts, parts that may actually mean you change your strategy, something you have to communicate regularly.

An organization is essentially a string of components forming a value chain welded together by transaction costs. A business’ competitive advantage is the sum or the average of its transaction costs. If competitive advantage is derived from cost leadership and/or differentiation, then digital can enable new sources for either or both. As businesses grow, pressure to add in resource and cost and to deliver ongoing shareholder return may well result in the need to increase prices. This need may be justified through the optimisation of goods and services. Yet a new digitally-empowered competitor entering the market may only (to use Pareto’s Principle) deliver 80 percent of the value but can do so at 20% of the cost. When this is combined with a potentially sector-defining change in customer-experience, this creates a significant disruptive threat.

In his TED talk How Data Will Transform Business, Philip Evans, Author and MD of the Boston Consulting Group, argues that with digitization it may become possible to achieve zero marginal cost in some components, meaning that the transactional costs plummet to a level where there is less or nothing to economize on. Evans argues that when certain components in the value chain plummet it can change the rules of the game for an entire industry – because it breaks up both the welding and usually (but not always) the entire value chain and allows for new competitive advantages and new value chains to take root – especially if the component that plummetted has been protecting the industry from outside competition. 

In a value chain or pipeline economy things move much slower and the number of competitors is fewer since it takes a long time to build the value chain, so often you can see them coming.

In a platform scenario it’s much harder to see or forecast the changes, throw in exponential changes in technology and customer behaviour and you’ll need to be a lot more agile in your thinking, use of partners, changes in your technology (or even the consumers) and your product development.

Some companies now exercise constant self-disruption rather than perfecting a strategy or recipe for success that is rarely questioned, ‘disruption’ teams work in parallel with day-to-day operations teams asking the right questions and put their weight behind critical change initiatives to keep the strategy on-course.

Let’s take a step back for a minute.

Strategy is well documented, in fact Boston Consulting Group's interactive history of strategy does this well in a visual context: 

 

Screen Shot 2017-04-11 at 10.26.32.png

It starts with the Ansoff matrix in the late '50s and moves upward from Classical Strategy through Adaptive, Renewal, Visionary and shaping from the '90s.

More recently in the last 6 years we see Business Model Innovation, Adaptive advantage, Competitive strategy, Algorithmic strategy and Transient competitive advantage. As a collection these appear to be more what we could consider to be the basis for a digitally-native strategy because they are adaptive and agile.

As part of any strategy we might also want to understand the digital maturity of the business in association with the strategic approach one takes. Is the company a Digital Native, meaning it leads with digital, or a Digital Immigrant, one of legacy thinking, process and technology and therefore what internal changes might it need to maintain its strategy and vision.

The Key to Good Strategy...is to have one. As Richard Rummelt noted in his excellent book on strategy (Good Strategy/Bad Strategy: The Difference and Why it Matters):

‘The first natural advantage of good strategy arises because other organisations often don't have one. And because they don't expect you to have one either. A good strategy has coherence, coordinating actions, policies and resources so as to accomplish an important end.’

He also said:

'A strategy is a coherent set of analyses, arguments and actions that respond to a significant challenge. A good strategy derives from consideration of many plausible courses of action and selects, in a deliberate, reasoned way, one/some of those courses of action to the exclusion of others.'

Many organisations, says Rummelt, substitute strategy for multiple goals and initiatives that may symbolise progress, but in reality lack a coherent approach to actually achieving that progress (apart from, he notes, ‘spend more and try harder’). We need to be clear that this is not fit for purpose for an uncertain, rapidly moving business environment.

At Rotman School of Management Professor Roger Martin has noted, many corporate strategies avoid this:

‘The very essence of strategy is explicit, purposeful choice. Strategy is saying explicitly, proactively: ‘’We're going to do these things and not those things for these reasons.”

The problem with a lot of strategies is that they are full of non-choices. Probably most of us have read more than a few so-called strategies that say something like, "Our strategy is to be customer centric." But is that really a choice?’

You only know that you’ve made a real strategic choice, says Martin: ‘if you can say the opposite of what that choice is, and it's not stupid’. Non-choice strategies (and for that matter missions) do lend themselves to confusion, misdirection and apathy, but do not lend themselves to moving quickly.

In Your Strategy Needs a Strategy by Martin Reeves, he proposed a strategy palette tool with five distinct possible strategic approaches; Classic, Adaptive, Visionary, Shaping and Renewal. These were defined by three environmental characteristics: unpredictability, malleability and harshness.

  1. The classical approach - traditional analyse-plan-execute method, with a goal of achieving sustainable competitive advantage through scale or differentiation.
  2. The adaptive approach - respond rapidly to changing market conditions by continuously experimenting, and then selecting and quickly scaling up whatever works.
  3. The visionary approach - the strategy of entrepreneurs — envisions and realises new business possibilities. Although this approach is typically associated with small start-ups, large companies now also may need to be visionary to stay relevant in the face of frequent disruptions.
  4. The shaping strategy - is about partnering with other companies to reshape an entire industry through collaboration, often using a digital market platform.
  5. The Renewal strategy - is the option to choose when a business is in jeopardy and needs to conserve its resources to fund the journey back to viability and growth.

Most large companies compete in more than one environment, or in ones that shift over time. Leaders, and we don’t just mean CEOs, need to deploy the right strategies and resources across these diverse environments.

If effective strategy is about making choices, then effective strategy for the agile business is about framing the choices we make through the lens of three key contexts which we cover in our book Building the Agile Business through Digital Transformation (Kogan Page):

  1. Consumer:- we need to be selective about which shifts in consumer behaviour we prioritise, and which customer needs that we choose to address first. This means appreciating the difference between a fad (a temporary spike in focus) and a trend (a more fundamental underlying shift). Fads may be focused around technologies, trends around behaviours. A company that is closely in touch with the customer, that is outwardly facing and willing to experiment with the new in order to learn, and one that is networked and able to draw on insight from a wide range of sources, is optimised to create the most effective strategy in today’s world
  2. Competitor:- we need to make choices about where we play in the market, to lead rather than obsessively follow and benchmark, to make more ambitious choices about who we regard as competition and be more open to who we can learn from.
  3. Company:- we need to understand the potential and application of new and existing technologies, and how they might be combined in new ways to create exceptional value. We need to be adept at knowledge flow, and drawing learning from rapid experimentation and iterative working in order to inform the choices we make around strategic direction

When it comes to agility and in order to achieve true agility we need an organisational strategy that retains the right combination of that which is fixed and ‘deliberate’, and that which is more flexible, or 'emergent'.

Harvard Business School professor and author Clay Christensen describes how strategy is ‘not a discrete analytical event’ or something decided using best known numbers at the time in a meeting of senior managers. Instead, it is a ‘continuous, diverse, and unruly process’ that constantly evolves.

So the art of managing this is not to dismiss anything that deviates from the original plan but to continually identify better options and then manage resources flexibly to nourish them. Rigid planning processes (particularly in large organisations, where challenging an original fixed plan can often be a political, morale-killing exercise) mitigate the flexibility needed to respond to rapidly changing contexts.

Professor Amar Bhide (in The Origin and Evolution of New Business) has shown that 93% of all companies that ultimately become successful had to abandon their original strategy. Companies that survive are able retain a high and consistent level of strategic adaptation and improvisation, even if they occasionally trip up along the way. Android, the largest operating system in the world, began with the intention of creating an operating ecosystem for digital cameras and has recently just surpassed Windows in terms of its usage.

Jeff Bezos once said:

‘We are stubborn on vision. We are flexible on details....If you’re not stubborn, you’ll give up on experiments too soon. And if you’re not flexible, you’ll pound your head against the wall and you won’t see a different solution to a problem you’re trying to solve.’

Stubborn on vision. Flexible on details. These words capture the essence of agile strategy.

The balance between a strong, directional vision that steers, guides and enables, and adaptive, iterative planning that flexes, adjusts and modifies in response to changing contexts and new information.

Iteration without direction is chaotic. The vision should be challenging, clear and compelling, but it needs to give direction to strategic choices and decision-making throughout the business.

Change does not come from the CEO standing in front of the company with a powerpoint presentation. It comes from constant reinforcement through frequent repetition of the vision and continuous communication of goals and progress.

It comes from the behaviours and decisions exhibited by senior leaders and those around us.

It comes from what we choose to recognise and reward, and how we structure our learning.

Every meeting, every update, every communication is a chance to underline, fortify and energise around that vision.

Yet rigidly pursuing a plan with no room for frequent adaptation leads to declining performance, missed opportunities, and limited learning.

Real change also comes from the continuous iteration that drives progress towards that vision. It comes from the flexibility that allows for enough autonomy and plasticity to adapt planning to continuously learn and improve.

Every sprint, every retrospective, every actionable learning is a chance to advance towards bringing that vision to life.

In order to maintain high operational tempo the US Army uses ‘Commander’s intent’ and the ‘concept of operations’. The Commander’s intent is the central objective or idea that pulls everything together, the unifying element of the plan, the Commander’s expression of what he wants to make happen.

The concept of the operation is designed to direct the way in which subordinate units should cooperate to fulfill a mission, and creates the sequence of actions that the force will actually use to get to that objective. The Commander’s intent should therefore bridge the gap between the mission and the concept of operations. This system has represented a move away from an over reliance on a rigid, and therefore increasingly unsuitable methodical planning process which does not work well in situations characterised by uncertainty. It is a governance structure designed for agility.

The agile organisation therefore, has a good understanding of what is fixed, and what is flexible, and the critical difference between a strategy and a plan.

A digitally native strategy is much more than a plan. A plan supposes a sequence of events that allows one to move with confidence from one state of affairs to another.

Strategy is often expected to start with a description of a desired end state, but in practice there is rarely an orderly movement to goals set in advance. Instead, the process evolves through a series of states, each one not quite what was anticipated or hoped for, requiring a reappraisal and modification of the original strategy, including ultimate objectives.

So a digitally native strategy should be fluid, and open to creating many potential routes to success (‘You don't make strategy so that there's one path to victory; you make it so that as many paths as possible lead to something which isn't loss’, said Nick Harkaway, in his novel The Gone-Away World). Doesn’t that sound more like Elon Musk’s approach?

So the pace of change at which each element evolves and adapts is key:

  • Mission and Purpose: are fixed and do not change
  • Vision: is compelling, and largely fixed
  • Strategy: characterised by choices, changes and evolves to take account of shifting contexts and new information, but does so more infrequently or slowly
  • Plan or tactics: highly fluid, iterative, and adaptive to feedback, learning and new information

Agility and adaptiveness increases the closer we get to execution, but the strategy and governance that frames planning, tactics and delivery is flexible enough to allow responsiveness throughout the organisation.

Leaders need to set the expectation, establish the governance that acknowledges necessary boundaries but removes barriers to progress, and empower teams with required tools and resources.

And then GET OUT OF THE WAY!

Whilst rigid, top-down strategy is the more traditional domain, the requirement in the agile business is both to set the strategy in such a way that it can evolve utilising a continuous stream of insight, data and feedback from customer facing teams, and in an environment of increasingly transient competitive advantage be ready to disengage and refocus, even when the business is still viable.

So with all this in mind what might your approach to a digitally native adaptive and agile strategy be? Do you agree strategy needs to be revisited?

For more insight into Digital, Strategy and Agility read 'Building the Agile Business Through Digital Transformation' by Neil Perkin and Peter Abraham.

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