Your strategy needs a strategy

When teaching strategy and marketing, and more importantly, when I help companies to define their next big moves, I inevitably remind myself that “all models are wrong, but some are useful”. This quote by the British statistician George Box applies to strategy and marketing because (a) there are many models we can choose from and (b) some are really useful, and (c) picking the wrong model for answering the wrong question can lead to disaster.

To give you a typical example: Porter’s five forces model on industry analysis, published in 1980, is beneficial if you want to analyze an industry where competitors, suppliers, customers, and substitutes can be clearly identified. However, the model is not really useful in many of today’s markets, where ecosystems compete with ecosystems or where one of your biggest competitors is also one of your most important suppliers. This is the case, for example, with Netflix and Amazon, where Amazon prime is a competitor to Netflix for content and subscriber. Yet, Netflix depends on Amazon’s cloud AWS for streaming all its content.

My colleagues at IMD, Knut Haanaes , Howard Yu , and Jennifer Jordan , together with Martin Reeves at the 波士顿谘询公司 BCG Henderson Institute and the late José Lopez, Former Executive VP of Operations at 雀巢 and 瑞士洛桑国际管理发展学院 (IMD) - 商学院 Executive-in-Residence have published an outstanding paper with the catchy title that “your strategy needs a strategy”. The article is based on a book co-authored by Knut with the same title, which I highly recommend.

As the figure indicates, the environment provides the context in which some strategies are more suitable than others and, consequently, where some strategic models apply better or worse. As a leader, you can ask yourself three questions:

1.?????Is the future somewhat predictable?

2.?????Do you shape your industry?

3.?????Is the environment very harsh?

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According to your current assessment of these three questions, the authors suggest the following approaches:

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The classical environment hosts highly predictable industries with solid brands, high regulation, and limited technology change, where winning means being big and efficient. A classical strategy – analyze, plan and execute – is optimal for succeeding in this predictable environment. Typical examples of companies in this domain include Coca-Cola and Mars.

The adaptive environment is characterized by unpredictability and technological disruption. Due to high uncertainty, classical planning becomes inefficient, and companies can win only by being flexible and experimentation oriented. A good example is Zara, which is very adaptive, experiments a lot and produces in small batches.

In a visionary environment, companies and entrepreneurs that operate in predictable industries yet focus on innovations, deploying a strategy that emphasizes visioning and implementation are typical of this setting. Leaders of such companies are visionaries who are not locked into current solutions or traditional ways of thinking. They “see patterns where others see noise.” IKEA is a visionary company that disrupts the industry and does everything to stay ahead.

Companies in a shaping environment do not accept the current market structures as a given but create new ecosystems. “We can’t predict the future, but we can create the game” is the mentality that prevails in such companies, and their strategy is all about influencing, orchestrating, and coevolving. With their ecosystems of companies, Alibaba, Amazon, and Apple are excellent examples of players in this space.

A renewal environment is characterized by harsh conditions when a company needs transformation. The strategy should prioritize survival over creating a competitive advantage by restructuring to free up and redistribute resources. Only when the survival goal has been achieved should the company attempt to deploy another strategy. American Express and Carlsberg Group are good examples of companies that underwent significant transformation and renewal when weakening performance initially threatened their existence.

Understanding this contextual perspective of strategy helps a leader avoid common mistakes. The first is the success trap, where leaders don’t want to change because what they did worked so well in the past. They use the same strategy models and apply them everywhere. This behavior is sometimes described as “if the only tool you have is a hammer, every problem becomes a nail”.

At the other end of the scale, leaders can fall into the perpetual search trap, switching from one model to the next without a clear commitment and patience to implement any of them successfully. Employees call those changes the “flavor of the month” strategy.