Quick takes

Citation

Gorrell, C. (2010), "Quick takes", Strategy & Leadership, Vol. 38 No. 6. https://doi.org/10.1108/sl.2010.26138fae.002

Quick takes

Article Type: Quick takes From: Strategy & Leadership, Volume 38, Issue 6

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

MasterclassA system for innovating business models for breakaway growthBrian Leavy

At its most basic, strategy has two fundamental concerns – value creation and value capture. Traditional perspectives that focus primarily on how to create sustainable sources of competitive advantage are primarily concerned with value capture – how to improve and secure competitive positions within their current markets. The current great leap in strategic management is learning how to achieve breakaway value innovation.

Value innovation, while concerned with both creation and capture, shifts the primary focus in strategy development to customers rather than competitors, and to the challenge of creating game-changing breakthroughs in the value-to-cost ratio. A common theme is that value innovation may or may not involve technological breakthrough but nearly always requires an innovative business model.

Innovative business modelA framework for mapping the basic architecture underlying all successful businesses has four main elements. The full power of this “deceptively simple framework” lies in the complex interdependencies of the parts.A degree of creativity and a willingness to experiment, pilot and adjust as you go, remains part of the business model innovation process, but the four-element framework can serve to bring the discipline of architecture to the process, and provide a structure on which a manageable and more repeatable innovation activity can be pursued. This new design tool puts the firm in a better position to take advantage of any white space opportunities that lie beyond the realm of the company’s traditional business model.

MasterclassManaging the threats and opportunities of the open corporationStephen Denning

Today, social media creates an inexorable pressure on corporations to manage, communicate and share information more openly. So how is “open management” different from traditional management and what changes are prodding firms to consider adopting it?

The researchers chosen for discussion in this “Masterclass” article posit that greater corporate openness is inevitable, given the need to compete to achieve continuous innovation. One of them, Charlene Li, the author of several new books including Open Leadership, offers leaders a detailed, practical, analytic guide for managing the process, especially how to deal with the challenges of social media.

Today’s environmentFour big changes have undermined the traditional management model of control: buyers have gained power; knowledge flows dynamically – in and out of a company; the company grapevine is juiced by social media; skepticism is the cultural norm.

To lead in an open corporation and to defend against the threats and to take advantage of the opportunities posed by social media, senior leaders need to understand how to operate in various degrees of openness. There are four levels of openness:

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  Level 1: “You take what we make” – firms view the marketplace entirely through the lens of their own goods and services.

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  Level 2: “We believe that our offerings will be useful to you.” – firms view their customers through the lens of the company’s goods and services, while ignoring the larger problems that the customers may be trying to solve. Most established private sector firms today are at Level 2.

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  Level 3: “We seek to understand and solve your problems with our offerings” – firms look at the world from the customers’ perspective, and are continually evolving their offerings to meet their issues.

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  Level 4: “We seek to understand and solve your problems with whatever it takes.” – firms are looking at the customer entirely from the customer’s perspective and will use their own inputs or those assembled through a network of partners to offer value.

Factors to considerOther topics discussed in this article:

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  The ten elements of openness.

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  The goals of openness.

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  When being more open is not better.

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  How to structure openness with covenants.

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  Three “openness” models for implementing change.

Making the transition to openness involves adding new processes, systems, and rethinking how the business is structured and managed; and – more importantly – it requires radically revising how people think, speak and act in the workplace.

BottomlineGreater openness is inevitable. As your customers and employees become more adept at using social and other emerging technologies, they will push you to be more open, urging you to let go in ways in which you may not be comfortable. Rather than trying to resist the trend, businesses need carefully thought-through plans for the orderly implementation to openness.

Delivering on the promise of open innovationJorge Rufat-Latre, Amy Muller and Dave Jones

For all the rhetoric – and hype – about open innovation, the reality is that few corporations have institutionalized its practices in ways that have enabled substantial growth or industry leadership. Why is that? Four reasons:

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  Unwillingness to change comfortable habits and practices.

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  A managerial mindset focused on competitive battle for market share – rather than a battle for competence-based advantage to produce customer value.

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  An organizational structure that promotes innovation within a closed R&D and product development system.

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  A mindset that views open innovation only as a new product development and commercialization process – rather than an integral part of ongoing strategy.

First stepTo deliver the promise of open innovation the first step is the change from a competition-focused, market-share mindset to a competence-based mindset. This creates an organizational environment in which open innovation can become a key enabler for growth and competitive advantage.

Illustrative casesIBM changed its mindset from one that was industry-focused to one that is benefit-driven and competence-focused. The combination of cultural expectations, managerial mindset, and competence-based focus has led to IBM’s turnaround.

P&G is arguably the world’s most notable open-innovation company. It is a master of brand management and marketing; P&G looks at open innovation as a means to solving a very specific problem: the need to source products and technologies in a way that leverages and strengthens its brand.

Apple has “the ability to create engaging, intuitive, and interactive experiences through the use of smart technological design and tight integration.” When Apple made the decision to use its competency to solve problems in other industries, like music, it discovered that it could indeed solve – or at least simplify – those problems and create new growth in these industries. In the case of the music, Apple found a model to provide consumers with legal access to digital music in a simple, engaging way. It didn’t need to produce the content, just enable access to variety through what it does well. With its Apps Store, Apple has been able to extract the value that it brings to the apps created in an open environment, all while maintaining its identity.

How to proceedOrganizations should focus on competence-based strategy before looking to open innovation as the engine for growth. Several questions are offered to assess opportunities. These questions are amplified by eight principles to follow to begin the transformation.

Done right, open innovation can bring tremendous value to a firm, its customers, and shareholders. Ask the right questions, establish the right internal structure, and plan appropriately.

Henry Singleton: a pioneer of corporate strategic leadership and value creationJoseph Calandro Jr

A study of the late Henry E. Singleton, founder of Teledyne Corporation, offers principles – especially financial strategy – that could be used by executives in today’s challenging times. Investor Warren Buffet credits Singleton as being an exceptional manager who taught him a great deal. The leadership and financial strategy principles of Singleton have broad applicability to executives across industries and to researchers across disciplines including strategy, finance, management, and entrepreneurship.

Singleton built his firm on a strong balance sheet, which is important because balance sheet analysis and management have generally become something of a lost art. The financial strategies he employed to create value included:

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  A long-term outlook for operating and capital deployment; this outlook facilitates resource allocation efficiency. He eschewed tactics that offered only a short-term rise in stock price.

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  Strategic use of stock buybacks. He bought Teledyne stock when its price was low, in contrast to current practices. A chart profiles his practice.

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  Buying securities of select firms when their stock price was favorable, in contrast to acquisition premium pricing.

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  Spinning off business units strategically when the value of doing so was greater than the value of continuing to manage them within Teledyne. This was part of a long-term move to enrich shareholders.

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  Splitting Teledyne into three separate groups to provide shareholders a choice of concentration of their holdings in areas of their greatest interest. This also facilitated more focused management structures and incentive compensation programs.

Strategic management involves both analytical decision-making and sound professional judgment. This strategic historical study of Singleton will yield many insights that can enrich the judgment of modern day managers.

War gaming: virtual reality, real lessonsBenjamin Gilad

War gaming is an excellent way to stress test a potential strategy against a competitor’s best moves in order to find one that is robust enough to withstand attacks. Externally-focused leaders value war games precisely because they impart a clear sense of reality in the shortest time to key gate-keepers and various constituencies in their companies.

This article examines the use of intelligence-based, role-playing war games. Recent research shows that role-playing is superior in its accuracy of predicting behavior than other methods available to planners

Intelligence-based, role-playing war gamesIntelligence-based role-playing takes into account both constraints and blind spots of market players, rather than assuming unrealistic fully rational behaviors predicted by neoclassical economic theory – that is, game theory. The beauty of war games is that in a role-play environment, teams are safe from the undue influence of their colleagues and have permission to blow holes in their company’s intended strategies. The result can be an eye-opening experience for leaders, one that fosters healthy humility, and an appreciation for the fact that plans will likely be attacked by competitors soon after they are implemented and therefore need as much “proofing” as possible before being launched.

War games expose three big myths1. Myth: Leaders intuitively know what strategy is and what it is not. Many executives tend to confuse strategies with goals or slogans, or with operating effectiveness, or with offering everything to everybody. Business strategy requires leaders to clearly delineate and then continually sharpen their competitive distinction or create a completely new one if the old one is losing its power.

2. Myth: Execution and implementation are tough; strategy formulation is easy. If better execution were the main reason for success, wins are typically transitory. Without truly superior strategy there is no basis to assume an advantage based on execution that can last more than year or two. The true advantage of war games is that they very quickly expose bad strategizing and rampant competitive convergence.

3. Myth: Leaders and their managers share an understanding of and enthusiasm for the company’s strategy. Gleaning intelligence from middle managers, salespeople, and competitive-intelligence professionals, war gamers can ascertain whether their market has become, or will soon become commoditized. Exposing the “shared understanding” myth can open up alternatives that are truly worth pursuing.

Practical lessons for leadersFor executives willing to experiment with war gaming, four action recommendations are offered.

Social media, reputation risk and ambient publicity managementPekka Aula

Because of social media, everything an organization does is profoundly public. Given the viral quality of news on social media, reputation risk can now be a primary threat to business operations and the market value of organizations.

When is a company most susceptible to reputational risk?

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  When the gap between an organization’s reputation and its reality grows.

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  When a change in the expectations of consumers occurs.

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  When an organization is internally unable to react to changes in the environment, such as poor coordination of the decisions made by different business units and functions.

When a company experiences these conditions, social media expands the spectrum and boosts the dynamics of the reputational risk factors. In social media services, users mostly generate unverified information – both true and false – and put forth ideas about organizations that can differ greatly from an organization’s own idea of what it is or what it wants to be. Understanding how to act and react begins with how social media challenges conventional strategy.

Social media challenges conventional strategy

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  Social media is a channel for distributing corporate communications and interact with the public to make positive impressions, but cannot be controlled by the corporation.

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  Strategic reputation management should concentrate on ethics rather than pursuing short-term interests. In social media, an organization cannot just look good; it has to be good. Reputation risk can result from an organization’s own communication activities, such being caught manipulating their online facts (such as in Wikipedia), or maintaining fake company blogs.

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  Reputation risk management should begin before, and not after, reputation crises. Once social media users have built a picture, and shared it with others, the subjective truth turns into a collective truth about what an organization stands for. If undesirable opinions go unchecked or unanswered, the situation becomes extremely difficult to correct.

Ambient publicity and reputation risksAn organization has a communicative environment of meaning on the Internet in which images, symbols, stories, myths, and rumors comprise its ambient publicity. Organizations, their stakeholders, and the public create a “complex narrative web” that defines its reputation. Nine tenets for leaders and four reputation strategies for managing ambient publicity are offered.

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