Emerald Group Publishing Limited
Article Type: Quick takes From: Strategy & Leadership, Volume 43, Issue 2
Catherine Gorrell is a veteran strategy consultant newly based in Portland, Oregon (email@example.com) and a contributing editor of Strategy & Leadership.
Strategies for creating and capturing value in the emerging ecosystem economy
Steven Davidson, Martin Harmer and Anthony Marshall
One of the transformations of the business environment for many firms is that their markets now are complex ecosystems of customers and participants. As a consequence, organizations must act now to develop ecosystem strategies aligned to their particular environments. This includes understanding and learning new skills of creating and capturing value, and challenging and changing their traditional organizational mindset.
In a business context, an ecosystem is a complex web of interdependent enterprises and relationships aimed at creating and allocating business value. By definition, they add mutual value – the whole is greater than the sum of the parts. Business ecosystems can span multiple geographies and industries, including public and private institutions and consumers. They have unique rules of engagement.
Value is created and captured differently in ecosystems
The way organizations create and capture value in an ecosystem differs from traditional markets. Each enterprise participating in an ecosystem creates value by innovating products, services or experiences. But as ecosystem partners they must collaborate to create and deliver something of mutually beneficial value. Each participant can capture value directly through transactions or indirectly from an orchestrator.
Ecosystem drivers: complexity and orchestration
Strategies pursued in one environment may differ drastically from strategies pursued in others. Chief among the drivers of this difference is the level of complexity in the activities undertaken, and second, the extent and formality of the orchestration in and around the ecosystem.
Four ecosystem archetypes
Complexity and orchestration characterize a spectrum of ecosystem archetypes (Exhibit 8):
Shark Tank. Participants in the Shark Tank ecosystem will face minimal orchestration and low barriers to entry. To survive and prosper in the Shark Tank, organizations need to work to differentiate their offering and capabilities as much as possible from competitors.
Lion’s Pride. Participants in the Lion’s Pride ecosystem experience both strong orchestration and high complexity in what they do and in their relationships in the ecosystem. To optimize their success, Lion’s Pride ecosystem participants should work to align their strategic objectives with those of the orchestrator.
Hornet’s Nest. The Hornet’s Nest ecosystem has high complexity and low orchestration. Organizations in Hornet’s Nest need to earn every transaction one by one. As such, the more they can build capabilities to deliver goods and services that are demanded, the more successful they will be.
Wolf Pack. Organizations in the Wolf Pack ecosystem experience strong orchestration but low complexity. They are continually at risk of new or existing competitors disintermediating their role in the ecosystem. It is crucial that Wolf Pack participants build and constantly sustain strong relationships with the orchestrator, who has the power to save or to destroy.
Interview: W. Chan Kim and Renée Mauborgne dispel blue ocean myths
Robert M. Randall
Blue Ocean strategy is a unique methodology for creating commercially relevant new market space. Rather than choosing either to work toward a technology innovation or lower-cost solution to the existing problem of an industry, blue ocean strategy starts by redefining the problem itself. Conceived of by INSEAD researchers W. Chan Kim and Renée Mauborgne, it is a methodology to create new demand or an offering that complements, rather than displaces, existing products and services. They recently updated their well-received book, Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant, which was first published in 2005.
To put the ideas and methodologies of blue ocean strategy into proper perspective, leaders need to have a robust understanding of best practice. In this interview, the researchers refute ten common misconceptions about blue ocean strategy and offer their insights about how the theory should be applied.
1. Blue ocean strategy is not a customer-oriented strategy that’s about being customer led. The focus is on noncustomers, not current customers. They hold the greatest insight into an industry’s pain points and points of intimidation that limit the size and boundary of the industry.
2. Blue ocean strategy does not mean the company must venture beyond the core business. The blue ocean can just as easily and more readily be created smack in the middle of an organization’s existing core businesses.
3. Blue ocean strategy targets value innovation as the way to open up commercially compelling new markets.
4. Companies need to continuously drive home the idea that while speed and being first in a market may be important, even more important is linking innovation to value.
5. Blue ocean strategy requires breaking the value-cost trade off to open up new market space. It is about pursuing differentiation and low cost simultaneously.
6. Regarding pricing, the best practice is not to pursue a low-cost pricing against the competition within an industry but to pursue pricing against substitutes and alternatives that are currently capturing the noncustomers of your industry.
7. Innovation alone is not enough to create and capture a blue ocean.
8. Equating blue ocean strategy with various theories of marketing myopically masks the holistic approach needed to create a sustainable high- performance strategy. For example, blue ocean strategy is not a niche strategy. It is more about desegmenting markets by focusing on key commonalities across buyer groups to open up and capture the largest portion of demand.
9. Blue ocean strategy argues that firms need to pursue value innovation to open up new market space and make the competition irrelevant.
10. Blue ocean strategy is about redefining the value proposition, which tends to create new demand or an offering that often complements rather than displaces existing products and services.
Best innovators develop a point of view on the future and a roadmap on how to get there
Kai Engel, Violetka Dirlea, Stephen Dyer and Jochen Graff
Based upon the best practices of the winners of the Best Innovator competitions over more than a decade, there are six essentials to creating high-potential innovation opportunities. The strong correlation between specific innovation management practices and sustainable, profitable growth is an important finding of this research.
1. Know what you want to achieve. Best Innovators have explicit expectations for innovation strategy – its contribution to growth, the segments in which they will compete, and what they will need to win. They can name the tangible deliverables to which their organization is committed. Several questions are offered to build a business case for innovation.
2. Own a point of view about the future. Best Innovators treat farsightedness as an organizational capability. Structured thinking about the future introduces long-term perspective into innovation portfolios and accelerates the speed with which choices are made.
3. Define the innovation search fields. Best Innovators prioritize the hunt for commercial ideas at the hunt’s earliest stage: the search-field stage. Search fields are the wide end of the innovation funnel, building on trends in the current operating environment and the world at large. Every search-field portfolio begins with a question. In which market segments, indeed in which industries, do we plan to compete not just today but in the future? Search fields are a guide to making choices.
4. Manage to the customer’s desired outcome. Best Innovators learn what customers want by understanding how customers think about the job they want a product or service to do. The challenge is that customers often don’t know what they’ll need next. Just as often, companies don’t really know what information they want from customers – a situation made no less difficult by the variety of ways in which “customer need” is interpreted by different departments within a company. Best practices are described.
5. Know your own competencies and invest accordingly. Best Innovators group competencies into two categories: knowledge and talent. The proper goal owns the right mix of talent and technology to match a company’s innovation strategies for the emerging future. The key question to answer is which will be developed internally and which will be bought or borrowed from partners.
6. Draw the innovation roadmap. Best Innovators map out their innovation development processes. This includes planning, target setting and building in flexibility for the surprises. Attention to the future and to customers provides not just resiliency but also continuous refreshment of strategy. In that respect, innovation roadmaps provide a complementary constancy, describing the path to profitable growth and what the business will need if it is to get where it wants to go.
Overcoming barriers to integrating strategy and leadership
Paul J.H. Schoemaker and Steven Krupp
The best innovators owe much of their success to six strategic leadership abilities: anticipate, challenge, interpret, decide, align and learn. These capabilities enable the organizational agility needed to shift gears quickly when operating in a fast moving marketplace. Each “ability” is presented with a clear description of the challenges to it, an example of how a company met the challenges and specific steps to overcome barriers.
The ability to anticipate. Strategic leaders need to foster a vigilant organization with processes that effectively watch for, evaluate, and respond to signals from the near and far reaches of its business environment, especially signals that are quite faint at first.
The ability to challenge. To promote challenging dialog, strategic leaders recognize the need for input from diverse stakeholders – colleagues, frontline employees, mentors, peers in other industries and even competitors – to encourage creative problem solving.
The ability to interpret. Strategic leaders try to make sense of uncertain environments by generating competing hypotheses that avoid the trap of getting stuck on a simple, single answer.
The ability to decide. Successful leaders will carefully frame a decision approach from the outset, review multiple options and balance rigor with speed. Yet, given the speed of change and degree of uncertainty, the most adaptive leaders iterate their decisions as they respond to real-time market feedback.
The ability to align. For many managers, operating in a matrix is the bane of their existence. There are so many stakeholders and competing interests. This puts a premium on the ability of strategic leaders to rally stakeholders around a strategic direction and bridge differences that can be polarizing. Insight, influence and bridge building skills are required to navigate the maze, negotiate competing interests and come out the other side united.
The ability to learn. Not only are mistakes valuable sources of learning, leaders should encourage well intentioned mistakes in select situations in order to challenge deeply held assumptions.
How to leverage the six disciplines in practice
Organizations wishing to invest in strategic leadership capacity can first perform an assessment using a model based on data collected from over 30,000 leaders. It measures specific behavioral attributes needed to evaluate a leader on the six abilities. The survey can have multiple uses in leadership development, high potential programs, talent management and succession planning.
Readers can complete a 12-item assessment online: http://www.decisionstrat.com
Does management innovation need a new change model?
Most large publicly-owned corporations relentlessly continue to implement the obsolete management practices supporting hierarchical bureaucracy and maximizing shareholder value, with the implicit or explicit intent of influencing the share price. Yet despite the boom in the stock market, these practices have resulted in a steady decline in underlying real performance.
Reform of traditional management is proving to be more like changing an ingeniously morphing virus that steadily adapts itself to, and ultimately defeats, intended fixes and returns to its original state, sometimes more virulent than before.
The root cause
Employing management methods to maximize shareholder value enforced by a hierarchical bureaucracy combine to cripple the capacity of any company to invest in innovation because:
To achieve short term shareholder gains, the bureaucracy will take the easiest and quickest path: cut costs, do financial engineering (such as share buybacks). Often these actions are taken at the expense of high-value, market-creating investments. When staff see substantial resources being diverted from investments in innovation in order to fund the extraction of organizational resources for executives and shareholders, they are unlikely to be motivated to commit to risky market making innovation project that require patient investment.
To maximize shareholder value through cost cutting and cash-cow strategy, a company will need to centralize management power to compel staff to pursue what is an inherently uninspiring goal. Over the long term, employees who are compelled to maximize shareholder value are unlikely to do so with engagement, let alone passion.
Without engagement or passion, employees are unlikely to make the commitment, and go the extra mile, to produce truly innovative products and services and find new ways to delight customers.
Correcting the imbalance of stakeholder power happens when by there is a refocus on the true purpose of the company: to create a customer. The customer-centricity required is not just “an increased attention to customer focus” by adding a marketing department; that is the equivalent of just adding a porch on to an existing house. It requires redesigning the functioning of the entire management structure: an approach that not only provides different answers, it demands that managers ask different questions. And, because delivering value to customers is an inherently inspiring goal: managers don’t need command-and-control to make employees do something they don’t want to do.
To get a true change in company management, we need better goals, better leadership, better management practices, better metrics, more pressure from below, more pressure from above, more pressure from within and more pressure from without. None of these factors by themselves can achieve the change. Together, they might.
To nurture transformational technology, build a community like Sam Walton’s
Osvald M. Bjelland and Robert Chapman Wood
Many mature companies are struggling to manage the gap between technology’s potential and what it actually does to add strategic and practical customer value. A roadmap of lessons can be gleaned from how, long before most companies grasped the potential of computers, Sam Walton and his team at Walmart not only made technology work, they showed how big technology can be made to create ecosystems supporting innovation and efficient partnerships.
Different times but similar challenges
The technology landscape has changed enormously since Sam Walton’s day, yet the role of general manager who has to incorporate technology into a strategic plan has changed remarkably little. Walton’s leadership successes offer clear lessons for today’s general managers.
Walton’s five technology innovation practices
1. A vision of technology’s potential: In any organization, the chief executive has to be the chief technology visionary and architect. But vision is not so much about brilliant intuition as about gathering data, asking questions, and learning what technology can do and is doing, then synthesizing what has been learned to create a vision or a new business model.
2. Focus on building a community of technology talent with a customer focus: Top management needs to recruit and inspire managers at all levels of an enterprise to form communities that produce customer-valued process and product innovation for customers. Nowadays, it is just as important to train technologist managers to understand and respond to the needs of customers and front line personnel as it is to hire the most accomplished technologists.
3. Adopt the role of “productive Chief Skeptic”: The transformational leader will need to be the chief skeptic as well as the chief visionary. It’s a challenge to be a productive skeptic, however. Walton succeeded by showing he really cared about the ideas of even the lowliest associate serving customers at the stores.
4. Tech design imperative: simple, clear and truly helpful: Technology has to serve the frontline managers. Adopting this principle, Walmart tech designers consistently emphasized simplicity and clarity of program interfaces so that technology actually helped store personnel do their jobs more easily and effectively.
5. Innovative hi-tech partnerships: Strategic partnerships and business ecosystems that leverage technology can create dominant competitive advantages, but truly successful partnerships have to be built on existing systems that already work seamlessly for people inside the participating organizations.
The steps that Walton took to get technology to work for Walmart should be an inspiration for many, a roadmap for some. At minimum, they deserve careful study from those who seek to champion operational innovation.