Quick takes

Strategy & Leadership

ISSN: 1087-8572

Article publication date: 7 November 2008

79

Citation

Gorrell, C. (2008), "Quick takes", Strategy & Leadership, Vol. 36 No. 6. https://doi.org/10.1108/sl.2008.26136fae.002

Publisher

:

Emerald Group Publishing Limited

Copyright © 2008, Emerald Group Publishing Limited


Quick takes

Article Type: Quick takes From: Strategy & Leadership, Volume 36, Issue 6

These brief summaries highlight the key points and action steps in the feature articles in this issue of Strategy & Leadership.

Value opportunity webs: a new concept for anticipating potential marketplace breakthroughsLiam Fahey and V.K. Narayanan

Spotting unique, highly rewarding opportunities in the marketplace of the future before anyone else is a critical strategic capability. Hence, the essential two questions are 1) how to devise ways to capture data in and around the marketplace that generates indicators of emerging and potential marketplace change that could lead to breakthrough customer offerings? 2) How to do so long before the opportunities are manifestly visible?

New methodology

The Value Opportunity Web (VOW) is a process for capturing and analyzing potentially valuable data about the external environment and transforming and leveraging the analysis of such data into winning customer offerings. These data come from unique communities of experts in a variety of fields, individuals “close to the action” who can anticipate, for example, how a set of technologies might intersect at some future point in time to create new product solutions or project the likely evolution of new regulatory legislation. The challenge that a VOW addresses is how to identify these data sources, how to create sets of technological mechanisms or “platforms” to capture the relevant data and how to manage these communities successfully.

The ultimate purpose of a VOW, however, is not data gathering but reflection and analysis, with the goal of identifying and developing new ways to deliver customer value. A VOW discovers and considers new customer needs, new ways of doing things, new functionalities, and new ways for a firm’s customers to deliver value to their customers.

There are four distinct and guiding attributes of a VOW:

  1. 1.

    Opportunity creation, which identifies potential customer needs.

  2. 2.

    Relationships with insightful external sources that drive the requisite data collection.

  3. 3.

    A “community” of information mavens that fosters interconnectivity – learning from each other. Three types are offered.

  4. 4.

    Knowledge processes that are needed to transform data into valuable insight and action implications.

These four key attributes define the future of discovery and analysis of emerging markets: organizations need to develop increasingly adept ways of garnering external data and leveraging knowledge that lies outside their own boundaries. A VOW shifts the focus explicitly to identifying and assessing new marketplace opportunities.

A way to understand change

The Value Opportunity Web (VOW) has a critical strategic purpose: to extract breakthrough opportunities from an ever-burgeoning world of external data by learning from a community of talented recruits, each an expert in one or more fields. The VOW enables strategists to promote knowledge structures in the organization and use them to initiate and inform discussions of strategy and operations. Indeed, a VOW thus becomes a way for the strategist to quickly understand change and to test breakthrough ideas as they emerge.

C.K. Prahalad heralds a new era of innovationRobert J. Allio

This interview of C.K. Prahalad, one of the world’s most respected strategic thinkers, discusses the points presented in his new book The New Age of Innovation. His premise is that the new value to be offered by businesses will be determined by one customer-created experience at a time, and be created with the alliance of multiple outside sources.

What are the driving forces that are pushing companies to leave their “mass customization” approach?

1) Connectivity, possible with the Internet; 2) digitization’s driving down costs; 3) convergence of technologies and industry boundaries; 4) social networking.

What is this new offering? Value is shifting from products to co-created, personalized experiences. This is more than a shift from being product-centric, firm-centric or customer-centric. Increasingly, offerings will involve two problem solvers (the consumers and the company) joining together to co-create value, and (at the same time) creating partnership value. Successful firms will learn to convert transactions into unique relationships.

How is this done? In order to serve effectively one consumer at a time, companies will likely have to access resources from a large number of vendors. Apple, for example, produces no content– it relies on large number of suppliers. Nor does it produce the iPod, its breakthrough product. To create personalized experience, companies need resources from multiple vendors, worldwide. The common term for this, “outsourcing,” doesn’t explain the process; the right word is “interdependence.”

When will be the tipping point for adoption of this form of value creation? Consider 2020 – who will be the managers? The 25-year-olds who are today 13! What will have been their life experience? Social networks, personalization, connectivity, and so on. They’re technologically savvy. They want to compete. But they want to co-create, and they are collaborative by nature. They are trained at multi-tasking. These will also be the new target consumers. Given emerging trends, 2020 is a conservative estimate.

The bottom-line message? This transformation is not a choice. It’s rather the inescapable consequence of the driving forces. De-risk by taking small steps. To those might think that this approach offers transparency of their business model – and gives away their competitive advantage – the answer is that a firm’s only protection is continuous innovation, not protecting its past. Today’s competitive advantage is therefore transient, ephemeral. There are no sustainable advantages. There is only advantage for the moment. Firms must continuously innovate—both in management and offering–if they want to survive!

Assessing the risk of M&A: Brunner’s Disaster Framework applied to Berkshire Hathaway’s Gen Re AcquisitionJoseph Calandro, Jr

Robert Bruner’s little known disaster-based merger/acquisition (M&A) risk assessment framework is a valuable tool to reduce M&A risk. This fact is demonstrated in this article’s retrospective case study of the Berkshire Hathaway’s 1998 Gen Re acquisition. For CEO Warren Buffet, this was a “deal from hell.”

The “disaster framework”

In the process of developing his innovative framework, Bruner studied numerous catastrophes, such as Chernobyl in April, 1986; Bhoal in December, 1984; Kansas City Hyatt walkway collapse. He realized that the types of initial misunderstandings, mistakes and miscalculations that are revealed after these notorious disastrous events occur can also be observed after management misadventures like failed acquisitions. He concluded that a model for causal analysis of disastrous occurrences could be used to assess M&A-related risk, as well as the risk of other ambitious strategic initiatives.

There are six factors comprising the disaster analysis framework Bruner offers to corporate leaders to better assess M&A risk:

  1. 1.

    Complexity – something in the business or deal that makes it difficult to understand and value.

  2. 2.

    Tight coupling – limited-to-no flexibility is available to absorb “the effect of miscalculations or worse than average luck; the most significant cause of this is paying too much for an acquisition. High prices reduce the flexibility to absorb any risk factors.

  3. 3.

    Business not as usual – turbulence in the business environment produces or contributes to errors.

  4. 4.

    Cognitive biases – for example, over-optimism.

  5. 5.

    Adverse management choices – unintended consequences that increase the risk of a deal.

  6. 6.

    Operational team flaws – arising from cultural differences, lack of candor, political infighting, and aberrant leadership.

According to Bruner’s observations, none of these factors alone would likely result in a disaster, but risk soars if most or all of these factors are present. He concludes, “The convergence of disaster causes is, I think, the most important foundation required of the thoughtful practitioner for understanding M&A failures, or for that matter, all business failures.”

Going forward

Applying this overview of Bruner’s M&A risk assessment framework to a retrospective case study provides a clear understanding of how a skilled acquirer like Warren Buffet could make some uncharacteristic misjudgments. By using the framework prospectively, as a risk assessment tool, corporate leaders could treat each of its factors as a key issue to be addressed prior to going to contract.

The anticipatory leader: futurist, strategist and integratorAnika Savage and Michael Sales

In today’s turbulent business environment, the advantage goes to organizations whose leaders are continually scanning the external environment, engaging in organizational dialogue and participating in learning processes in order to discover possibilities, mobilize positive energy and build commitment within their organizations to achieve a shared, robust view of the future. So that more leaders can succeed in this way, an analysis was done to decompose the action skills and thought patterns of these exceptional leaders.

How do these leaders do it?

These “anticipatory leaders” consistently demonstrate three skills:

  • As futurists, they inform themselves about a wide range of current events and trends.

  • As strategists, they hone their understanding of the opportunities and threats that these shifts present.

  • As integrators of ideas, beliefs and emotions they continually engage with the people of their organizations, identifying opportunities and aligning resources toward common objectives.

Anticipatory leaders, either implicitly or explicitly, engage in a particular type of thinking that combines a whole-systems mentality with scenario analysis – the art of sketching vivid and plausible stories to stretch futures thinking. They dig below the surface of today’s urgency and noise to discover the dynamic structure underlying whatever topic they are focused upon. By doing this, they achieve a disciplined understanding of a range of potential future conditions. When systems thinking and scenario analysis are used together, anticipatory leaders are able to galvanize action at all levels of their organizations through their ability to articulate the thinking that informs strategic decisions and, thus, engage others in the process. These are not isolated skills, nor are they used sequentially. The futurist, the strategist and the integrator are always present and always interacting at iterative levels of refinement and in the inclusion of new information.

Interviews with successful anticipatory leaders are presented. The authors also offer executives a “Self-Assessment” inventory. The inventory may highlight strengths already present in your way of thinking and leading and/or direct attention to other, perhaps underutilized skills.

Implications

Leaders who hope to successfully shape how their organization evolves in the dynamic era that is unfolding should study the art of anticipating the future.

Globality: challenger companies are radically redefining the competitive landscapeHarold L. Sirkin, James W. Hemerling and Arindam K. Bhattacharya

We are entering a new phase of worldwide trade and economic development, “globality”, in which there will be no single geographic center, no ultimate model for success, no surefire strategy for innovation and growth. Companies from every part of the world will be competing – for customers, resources, talent and intellectual capital – with each other in every one of the world’s markets. Products and services will flow from many locations to many destinations. “Globality” is what comes next after globalization.

The “globality” change

As this new scene unfolds, the incumbent global leaders will increasingly be forced to defend turf they thought they had won and secured long ago. And their expansion into emerging markets will be challenged as never before. The challenger companies have grown from local to global – adding more operations, in more places, representing more points of view. But instead of squelching local differences, they encouraged them. They retained their bias toward a decentralized management style, which allows them to leverage each new viewpoint as a new source of expertise, market knowledge, and best practice. They have mastered synthesizing not just many points of data, but many, many points of view.

Globality means embracing “manyness”. Challengers view the world not as one increasingly global entity, but as a collection of diverse regions, each requiring strong local leadership with autonomy to act knowledgably, quickly, and decisively. These companies adopt management structures in which responsibility and decision-making are widely shared throughout the company, with rich debate going on across regional viewpoints, from lower managerial ranks all the way up to the board.

What’s revolutionary?

Such companies have achieved something entirely new: they are able to devolve control, without descending into chaos; and they are innovating new centers of executive influence and new governance structures that support multiple independent centers of activity, while still leveraging global scale.

Bottom-line actions. Move into hyperdrive. Abandon any expectation that things will go back to the way they used to be. They won’t. Regardless of how success is ultimately defined, incumbents must recognize that the era of globality is here now, and incumbents need to take action and learn from challengers.

The new demography of the 21st century: part 1 – the birthrate surpriseMartin Walker

There is a surprising drama now unfolding across the world: demographic trends that portend social transformations. Demography, despite the uncertainty of projections of current trends into the future, is an essential tool. Governments, international agencies and private corporations depend on them for strategic planning and long-term investment. They seek to forecast the likely pensions and health costs of the future numbers of elderly, the size of the future labor force, and the numbers and locations and incomes of future consumers.

Cautiously assess trends

It is important to note that trends in demography can be particularly misleading; nobody can predict when they will stop. Projections of birth rates, for example, can be embarrassingly at odds with the eventual reality. There are now three widespread assumptions about demographic trends that seem to be misguided:

  • Europe’s native population is in steady and serious decline from a falling birthrate, and that the aging population will impose possibly intolerable pressure on the abilities of governments to maintain pension and health systems that can cope.

  • Mass immigration into Europe, legal and illegal, is combining with an eroding native population base to transform the ethnic, cultural, and religious identity of Europe.

  • Population growth in the developing world will continue to proceed apace.

New data indicates that these three assumptions are highly questionable and that they are not a reliable basis for serious policy decisions.

Sampling of current trends and factors

  1. 1.

    Northern and western Europeans are now projecting steady population growth over the coming half-century. By contrast, the population trends for Southern and Eastern Europe show none of this birthrate revival.

  2. 2.

    By the year 2050, more American babies will be born than Chinese ones and the United States will be contributing more to the world’s population growth than a shrinking China.

  3. 3.

    Birthrates are falling across most of the developing world, Asia, Latin America and the Middle East. The one glaring exception to this global trend is sub-Saharan Africa, which by the end of this century may be home to as much as a third of the human race.

  4. 4.

    Even as Russia is becoming rich with its oil and gas wealth, the death toll – attributed to alcoholism, smoking, improper nutrition, avoidance of healthcare, psychological stress – continues to be unnecessarily high. A very large question mark must be placed on the economic prospects of a country whose young male workforce looks set to fall by half.

  5. 5.

    A great religious revolution will take place this century, as Africa becomes the home of most Christians and to as many Muslims as Asia, and far more than in the Middle East.

Catherine GorrellPresident of Formac, Inc. a Dallas-based strategy consulting organization (mcgorrell@sbcglobal.net) and a contributing editor of Strategy & Leadership.

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