Your Strategy Needs a Strategy

1 2 3 4 YOUr 5 6 7 STRATEGY 8 9 10 NEEDS a 11 12 13 STRATEGY 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 FM.indd 1 3/23/15 11:33 AM 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 FM.indd 2 3/23/15 11:33 AM 1 2 3 4 5 YOUR 6 7 8 9 STRATEGY 10 11 12 13 NEEDS a 14 15 16 17 STRATEGY 18 19 20 How to 21 22 Choose and Execute 23 24 the Right Approach 25 26 27 28 29 MARTIN REEVES : KNUt HAANÆS : JANMEJAYa SINHA 30 31 32 HARVARD BU SINE SS R EVIEW PRE SS 33 BOS TON , MA SSACHUS ETTS 34 FM.indd 3 3/23/15 11:33 AM 1 2 3 4 5 6 7 8 9 10 11 12 13 HBR Press Quantity Sales Discounts 14 Harvard Business Review Press titles are available at significant quantity discounts when purchased in bulk for client gifts, sales promotions, and premiums. Special editions, 15 including books with corporate logos, customized covers, and letters from the company or 16 CEO printed in the front matter, as well as excerpts of existing books, can also be created 17 in large quantities for special needs. 18 For details and discount information for both print and ebook formats, contact [email protected], 19 tel. 800-988-0886, or www.hbr.org/bulksales. 20 21 Copyright 2015 The Boston Consulting Group, Inc. 22 All rights reserved 23 10 9 8 7 6 5 4 3 2 1 24 No part of this publication may be reproduced, stored in or introduced into a retrieval 25 system, or transmitted, in any form, or by any means (electronic, mechanical, photocopying, recording, or otherwise), without the prior permission of the publisher. Requests for 26 permission should be directed to [email protected], or mailed to Permissions, 27 Harvard Business School Publishing, 60 Harvard Way, Boston, Massachusetts 02163. 28 The web addresses referenced in this book were live and correct at the time of the book’s publication but may be subject to change. 29 Cataloging-in-Publication data is forthcoming. 30 31 eISBN: 978-1-62527-587-5 32 33 34 FM.indd 4 3/23/15 11:33 AM 1 CONTENTS 2 3 4 CHAPTEr 1 5 Introduction 1 6 7 CHAPTEr 2 8 Classical: Be Big 25 9 CHAPTEr 3 10 Adaptive: Be Fast 57 11 12 CHAPTEr 4 13 Visionary: Be First 87 14 CHAPTEr 5 15 Shaping: Be the Orchestrator 113 16 17 CHAPTEr 6 18 Renewal: Be Viable 141 19 CHAPTEr 7 20 Ambidexterity: Be Polychromatic 173 21 22 CHAPTEr 8 23 Lessons for Leaders: Be the Animator 193 24 EPILOGUE 25 Personally Mastering the Strategy Palette 211 26 27 Appendix A: Self-Assessment: What Is Your Approach to Strategy? 215 28 Appendix B: Further Reading 219 29 Appendix C: Multi-Armed Bandit (MAB) Simulation Model 223 30 Notes 227 31 Index 247 32 Acknowledgments 265 33 About the Authors 269 34 FM.indd 5 3/23/15 11:33 AM 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 FM.indd 6 3/23/15 11:33 AM 1 2 3 4 YOUR 5 6 7 STRATEGY 8 9 10 NEEDS a 11 12 13 STRATEGY 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 FM.indd 7 3/23/15 11:33 AM 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 FM.indd 8 3/23/15 11:33 AM 1 CHAPTEr 1 2 3 4 5 INTRODUCTION 6 7 Your Strategy Needs a Strategy 8 9 10 11 12 13 How to Select and Execute the 14 Right Approach to Strategy 15 16 Strategy is a means to an end: favorable business outcomes. When we think 17 about strategy, we tend to think about planning: study your situation, define 18 a goal, and draw up a step-by-step path to get there. For a long time, plan- 19 ning was the dominant approach in business strategy—in both the board- 20 room and the classroom. But effective business strategy has never really 21 consisted of just this one approach. The multidecade plans that oil compa- 22 nies make would feel inappropriate to the CEO of a software firm that faces 23 new products and competitors every day and that therefore adopts a more 24 fluid and opportunistic approach to strategy. Neither would such long-term 25 plans feel natural to an entrepreneur creating and bringing a new product or 26 business model to market. What is this broader set of ways in which we can 27 approach strategy, and which approach is the most effective in which situa - 28 tion? That is the central question of this book, and we will show that getting 29 the answer right can deliver demonstrable, significant value. 30 Today, we face a business environment that is faster changing and more 31 uncertain than ever because of, among other factors, globalization, rapid tech- 32 nological change, and economic interconnectedness. Perhaps less well known 33 is that the diversity and range of business environments that we face have also 34 Chapter_01.indd 1 3/23/15 11:48 AM 2 Your Strategy Needs a Strategy 1 increased. Large corporations, in particular, are stretched across an increasing 2 number of environments that change more rapidly over time (figure 1-1), requir- 3 ing businesses not only to choose the right approach to strategy or even the right 4 combination of approaches, but also to adjust the mix as environments shift. 5 One size doesn’t fit all. 6 Prompted by the increased uncertainty and dynamism of business envi- 7 ronments, some academics and business leaders have asserted or implied that 8 competitive advantage and even strategy more broadly is less relevant.1 In 9 fact, strategy has never been more important. The frequency and speed with 10 which incumbents are being overthrown and the performance gap between 11 winners and losers have never been greater (figure 1-2). Many CEOs are 12 looking over their shoulders for the upstart competitor that may undermine 13 their company’s position, and many upstart companies are aspiring to do 14 just that. It has never been more important, therefore, to choose the right 15 approach to strategy for the right business situation. 16 17 FIGURE 1-1 18 Increasing diversity of environments 19 Heat map of range of strategic environments faced by companies 20 21 1960s 1980s 2000s * * * 22 MCap volatility MCap volatility MCap volatility 23 24 25 26 27 28 Revenue growth † Revenue growth † Revenue growth † 29 Many companies Few companies 30 Source: Compustat (US public companies); Martin Reeves, Claire Love, and Philipp Tillmanns, 31 “Your Strategy Needs a Strategy,” Harvard Business Review, September 2012. 32 Note: MCap, market cap. 33 * Standard deviation over ten years of annual growth in market capitalization (MCap) (log scale). † Absolute percent revenue growth averaged over the decade (log scale). 34 Chapter_01.indd 2 3/23/15 11:48 AM Introduction 3 FIGURE 1-2 1 Increasing gap between winners and losers for US companies 2 3 Average EBIT margin across industries 4 0.35 Top quartile 0.30 5 0.25 6 0.20 7 0.15 8 0.10 9 0.05 10 0.00 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 –0.05 11 –0.10 12 –0.15 Bottom quartile 13 –0.20 14 Source: BCG analysis (August 2014), Compustat. 15 Note: EBIT: earnings before interest and taxes. EBIT margin across industries is based on an analysis of 16 approximately 34,000 publicly listed, mainly US companies in years when net sales were greater than $50 million; computing quartile average within six-digit GICS industry (unweighted), then averaged 17 across industries (weighted by number of companies per industry per year); excluding outliers (higher than 100 percent margin or lower than minus 300 percent margin) and industries in years with 18 insufficient data points. 19 20 Unfortunately, it has also never been more difficult to choose the right 21 approach. The number of strategy tools and frameworks that leaders can choose 22 from has grown massively since the birth of business strategy in the early 1960s 23 (figure 1-3). And far from obvious are the answers to how these approaches 24 relate to one another or when they should and shouldn’t be deployed. 25 It’s not that we lack powerful ways to approach strategy; it’s that we lack 26 a robust way to select the right ones for the right circumstances. The five- 27 forces framework for strategy may be valid in one arena, blue ocean or open 28 innovation in another, but each approach to strategy tends to be presented or 29 perceived as a panacea. Managers and other business leaders face a dilemma: 30 with increasingly diverse environments to manage and rising stakes to get it 31 right, how do they identify the most effective approach to business strategy 32 and marshal the right thinking and behaviors to conceive and execute it, 33 supported by the appropriate frameworks and tools? 34 Chapter_01.indd 3 3/23/15 11:48 AM 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 Chapter_01.indd 4 FIGURE 1-3 Proliferation of strategy frameworks Number of salient strategic frameworks Shared Value Continuous Strategy Process Open Innovation Dynamic Strategies Blue Ocean Temporary Advantage Strategy Tipping Point Transient Co-opetition Competitive Advantage Value Innovation Strategy as Competing for the Future Simple Rules Adaptive Dynamic Capabilities Change Management Serial Temporal Advantage Disruptive Innovation Advantage Business Strategic Inflection Points New Economics Model Value Migration of Information Innovation Ecosystem Strategy Competitive Hypercompetition Strategy: Options Mass Customization and Games Re-engineering Algorithmic Transformational Change Strategy Mintzberg's 5Ps Time-based Competition Resource-based View First Mover Advantage S-curve (Dis)continuous Innovation Return Strategic Intent Diversification Strategy and Profitability Capabilities on Quality Bottom of the Pyramid Bowman's Niche Strategy

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