Blame it on the extensive work schedule, myself working on 100 things at a time, the Dublin Pub culture or all things together; multiple weeks have past since I wrote down my thoughts. I was tempted to write bits and pieces between now and then (especially after the amazing experience of Web Summit in Lisbon in November). But I realised that every time I wrote, I would go back to it a little later and have a complete different view on things.
This is because the last months have been intense and varied: from software development life cycles to digital trends and hypes to innovation management and all the way back to the sticky question: “What is strategy?”
For understanding the change in strategic planning in the digital era, we have to go back to how internet technologies affected and shaped organisations. The rise of IT made it possible for companies to leverage information, knowledge and resources more quickly and to get connected within and outside the firm’s boundaries. What we famously call ‘digital economy’ is the way technologically enhanced productions and virtual services become the focus of companies’ innovation, replacing traditional physical goods.
Technology Innovations change the organisation, the offerings and their macro-environment
Christensen’s “theory of disruption” famously portrayed how established companies were outcompeted by new market players or small entrepreneurs who penetrate the market from the niche they experimented in. However, nowadays, innovation happens differently: Rather than replacing existing products, existing offers get recombined or outperformed by new or better connectivity capabilities through new value models.
‘Disruptors’ are no longer just new and small incumbents but established technology companies entering markets traditionally dominated by ‘non-techs’. The established firms in these markets had to shift their focus and adapt to this ‘tech-wave’. Combatting was aimed through the help of strategic partnerships with the successful tech firms, through acquisitions of other innovative incumbents or, if possible, through own R&D forces. The notion of co-creating value with joint partnerships made firm’s boundaries become looser. Cloud-solutions and virtual product developments on the cloud, also known as ‘platformization,’ allow for multiple actors to engage in value adding activities and create complementary, virtual products and services.
Platformization enable the experimentation and adaptability of new innovations and business models easily; scalability and business growth becomes a matter of mouse clicks and server capacity rather than getting hands dirty with focus groups or knocking on customers’ doors. Amazon Web Services for instance, today, can simply try new features and offers on their platform without any big additional investments into usability studies, product launches or sales campaigns. Digital products become pervasive and innovation becomes a ‘shared’ model. The result: a whole reshape of the competitive landscape and along with this, the question how to anticipate and plan accordingly into the unknown future.
I appreciate, the picture I outline here has a strong taste of technological determinism and creates the idea of ‘disrupt or get disrupted’. However, I do believe that technology and the effects of technological innovations are enacted by how we apply and use them. Companies should not be encouraged that they are ‘able to prepare’ or ‘to arm’ themselves, but rather should engage in this technology big bang and become an active driver of this advancement. So how setting the strategy to do so?
What Strategy can lern from (Digital) Product Development
Strategy, in its very essence is the evaluation and development of a plan. It is an assessment of the current status (A) quo and a plan to achieve a desired point in the future (B). Ideally, the aim is to find a way from A to B with the minimum use of resources, the maximum revenue and the strongest market position as the result. Strategic planning takes into account the resources at hand (internal factors) and the market needs (external factors) to achieve the overall goal in the intersection where demand and supply meet. It helps reducing risks by following this plan, setting guidelines and creating a long-term vision for the business.
In contrary, innovation is a process where uncertainty is the very essence of the problem task. The outcome is unsure, how to get there is unclear and if this will be successful either. Schumpeter (1939) described the entrepreneur as ‘the innovator’, creating something novel and new to create profit from it. Ironically, many established companies struggle to innovate today. When company structures become established, it becomes a matter of hierarchy and stakeholder agreement to allocate resources strategically. Budgets are simply not given to high-risk and uncertain projects and ideas anymore. So while this does not count for all companies, but still many: In fact, only because they have troubles innovating, does not mean they would not like to or are unable to do it, but rather that innovation has become a matter of politics. (But this only as a side note from my personal perspective that established companies are too often unfairly judged as ‘not innovative’ or ‘lumbering colossuses’.)
While innovation is an uncertain path, still, many companies create innovative products and services successfully. What can strategy then learn from this innovation process?
A term that is manically overused in the field of product development, but it still very valuable is ‘agile’. Agile is a methodology that origins in software development teams. The key ideas are that multiple prototypes, many iterations and revisions, and all at fast speed, lead to exploring the right features and the ideal design for a given product (or service, or software, or..). Every prototype will be tested, feedback goes back into the development loop and every such iteration phase will produce a better delivery, getting closer and closer to the final product. Resources are treated as scarce and user involvement helps targeting the right features.
Strategy in the Making
If we translate this into the field of strategy, we find our flaw: our strategic plan still aims for a goal in the longer future and we still try to achieve that goal by ‘sticking to this plan’, while in reality, market conditions change rapidly over the course of the execution of the plan. Of course, no company will agree that they ‘stick to the plan’ after the iceberg has been hit and directions must be changed. But the simple fact of believing in a strategic ‘planning’ seems naive when striving for competitiveness in a digital age.
Instead, strategy should be seen as a continuous match of resources and market conditions, including re-iterations and feedback loops. And because the market conditions change at high speed, these iterations must happen at adequate speed and numbers of iterations. Competitive advantage and strategic planning become ‘temporary’. What Mintzberg already stressed in 1994, strategy ‘formation’ (not formulation) is the right credo. How we act and what we decide forms our strategy rather than how we execute a predefined plan. While plans may help reducing uncertainty, certainty can never be fully erased.
Today, executives should embrace this uncertainty, constantly review and re-iterate their strategy (as they do with their products) and develop competitive advantage with innovative solutions,- detached from planned instructions. In order to make this happen, a shift in the mindset of management, executive and supervisory boards must happen towards a de-connection of strategic plans, long-term delivery plans and towards a loss of strict risk aversity.
Not every risk is just risk: there is threads and there is opportunities, both should be recognised as such and pursued or avoided accordingly. I call this ‘Strategy in the Making’.