Adaptability: The New Competitive Advantage Flashcards
Introduction
Traditional methods used in strategy relatively stable.
But in today’s context, many things risky & uncertain, traditional methods not enough.
Adaptability important for companies to remain competitive
Introduction Examples
Sense of unease from:
globalisation, new tech, greater transparency
The volatility of business operating margins double since 1980
Percentage fo companies falling out of top 3 ranking in their industry increase from 2% to 14 % in 2008
The strong correlation between profitability and industry share is now almost non-existent in some sectors
Volatility
From market leader to market follower
Changes always happening
Uncertainty
Uncertain scope of industry
The traditional approach to strategy
Based on relatively stable and predictable world
Aim to build enduring, static, competitive advantage by establishing clever market positioning (Remain at advantageous position for long time)
Focus on first order capabilities (position, scale)
Undertake periodic strategy review and set direction and organizational structure on basis of analysis of their industry and some straight-line forecast of how it will evolve
Solution to volatile and uncertain industry
Look for 2nd order organizational capabilities (1st world don’t work in this case)
4 organizational capabilities to adapt rapidly
2nd order capabilities
- Ability to read and act on signals of change
- Ability to experiment
- Ability to manage complex multi-company systems
- Ability to mobilize
- Ability to read and act on signals of change
Listen to external signals of change, decode them, quickly act to refine/reinvent its business model and reshape information landscape of its industry
Data Analytics:
Examine large amounts of data to uncover hidden patterns, unknown correlations and other useful information that can be used to make decisions
(predict behaviour – more consumers – more profit)
Find relevant information:
Out of 70% data collected in the past 2-5 years, only 0.5% used
Ensure the right information/data acquired
Need to use point-of-scale systems
Apply advance data-mining technologies to recognize relevant patterns
Use technology to read signals
Make operational intervention
Bypass slow-moving decision hierarchies
- Ability to read and act on signals of change
Summary
Listen to signals of change, and analyse them to quickly act
Use data analytics to examine hidden patterns/correaltions
Collect relevant data with the help of tech (point of scale system)
Tech can also detect signals to make intervention before it happens.
- Ability to read and act on signals of change
Examples
Tesco:
Detailed analysis of purchase patterns of > 13 million members of the loyalty program
Can customise offerings for each customer
identity early warning of shifts
The online platform allows them to offer a broader range of products and services (media and finance)
Sell its technologies and insights to other enterprises
Other example:
Google – Data and algorithm (ad)
Youtube – recommendation
NTUC cards – collect data from passion card
- Ability to experiment
Experimentation to develop and test new products and services
Broaden scope of experiment
With experiment comes failure – Embrace Failure
Market facing pilot and test might affect reputation and brand
Use other approaches and tech to experiment
Eg. Virtual reality, reduce cost of every test
- Ability to experiment
Example
Ikea:
Leverage on existing assets and capabilities to experiment with business models
After entering Russia, noticed value of nearby real estate drop whenever it opened a store
Explored 2 business models at the same time
(1) Retailing through its stores
(2) Capture appreciation in real estate values through mall development
Makes more profit in Russia from developing and operating malls than from its traditional retail business
- Ability to manage complex multi-company systems
Think of business as dynamic business unit of analysis and strategy (not single business unit) Multiple stakeholder (customers, suppliers) Business ecosystem made of interdependent networks
Increase amount of economic activity occurring outside corporate boundaries – outsources, offshoring, values nets, value ecosystem
Industry structure better characterized as competing webs/ecosystems of codependent companies
(instead of group of competitors working on stable, distant transactional basis)
Advantage to companies that can create effective strategies at network / system level
Use common standards to foster interaction with minimal barriers
Bring together assets and capabilities of many entities to bring success
Enhance adaptiveness through signal detection, parallel innovation, superior flexibility, rapid mobilization, multi-company systems
- Ability to manage complex multi-company systems
Example
Toyota automotive supply pyramid:
kabana kaizen feedback mechanism
EBay complex network of sellers and buyers:
Company relies on seller ratings and online payment systems to support online market place
Google Andriod operating system:
Capitalized on broad array of hardware partners and application developers
- Ability to mobilize
Ability to mobilize employees and partners
Adaption at local level (by experimenting) and global level (through sharing of information)
After experiment succeeds, will be communicated, selected, amplified and refined
encourage sharing of information, knowledge flow, diversity, autonomy, risk taking, flexibility
Need flexible structure and dispersal of decision rights
- Replace permanent silos and functions with modular units that freely communicate and recombine according to the situation at hand
Dispersal of decision making
- changes detected more easily
- Respond quickly and proactively
Decentralize, fluid, competing organizational structures
(but cannot tell what everyone is doing)
– Provide people with substitute for that certainty (simple, generative rules to facilitate interaction, help people make trade-offs, and set decision-making boundaries)
- Ability to mobilize
Example
Oticon:
To become innovation, CEO got rid of desk and titles
People recognise according to projects and what they wanted to try
Ended up in chaos
Idea was to get rid of anything detrimental to innovation
Culture of constructive conflict
benefits > cost
Generate productivity
Mutually beneficial shared decisions
Progress becomes important as the end results
Individuals come together to redefine/strengthen their relationship for the greater good of parties involved.
Adapting to Challenges for big business
- Look at the mavericks
- identify and address the uncertainties
- Put an initiatives on every risk
- Examine multiple alternatives
- Increase clock speed
- Look at the mavericks
new entrants into industries
Fast-changing industries are characterized by the presence of disruptive mavericks - often entirely new players, sometimes from other sectors
Should shift focus to what the new players are doing and to think of ways to insure the company against new competition or neutralize its effect
Look at adjacent and analogous markets – “What if this happened in mine?”
Pattern recognition harder in uncertain environment
- can be easily obstructed by new competitions new beliefs and narrow industry definition
- identify and address the uncertainties
Put aside the traditional single business forecast
• Examine the risks and uncertainties that could significantly affect the company
– Forces people to realize what they don’t yet know and to address it
• Distinguish between:
- “false knowns”: questionable but firmly held assumptions
- “underexploited knowns”: megatrends you may recognize and perhaps have even acted on, but without sufficient speed or emphasis
- “unknown unknowns”: intrinsic uncertainties that you can prepare for only by hedging your bets
- Put an initiatives on every risk
- Strategic initiatives → engine that drives your organization into adaptability
- Every significant source of uncertainty should be addressed with an initiative
- i.e. responding to a neglected trend, creating options for responding to it, learning about it
- In managing these initiatives, your company should be as disciplined with metrics, time frames, and responsibilities as it would be for the product portfolio or the operating plan
- Examine multiple alternatives
• Plans and backup plans
• Every change proposal should be accompanied by several alternatives
– More varied and powerful set of moves
- Increase clock speed
- The speed of adaptation is a function of the cycle time of decision-making
- In a fast-moving environment, companies need to accelerate change by making annual planning processes lighter and more frequent and sometimes by making episodic processes continual
- i.e. time pacing
Adaptive Approach
Stable and predictable industry→ stick to traditional sources of advantage
Uncertain and volatile industry→ dynamic and sustainable way to stay ahead by building an organization that can exploit the 4 capabilities to gain adaptive advantage
